Do Firms Strategically Internalize Disclosure Spillovers? Evidence from Cash-Financed M&As
Journal of Accounting Research [58(5): 1249-1297 (December 2020)]
62 Pages Posted: 16 Apr 2018 Last revised: 28 Dec 2020
Date Written: October 6, 2020
We investigate whether managers internalize the spillover effects of their disclosure on the stock price of related firms and strategically alter their disclosure decisions when doing so is beneficial. Using data on firm-initiated disclosures during all-cash acquisitions, we find evidence consistent with acquirers strategically generating news that they expect will depress the target’s stock price. Our results suggest the disclosure strategy leads to lower target returns during the negotiation period when the takeover price is being determined and results in a lower target premium. These findings are robust to a battery of specifications and falsification tests. Our results are consistent with expected spillovers influencing the timing and content of firms’ disclosures in M&A transactions.
Keywords: corporate disclosures; internalizing externalities; mergers and acquisitions
JEL Classification: D62; D83; G34; M41
Suggested Citation: Suggested Citation