Information Disclosure and the Market for Acquiring Technology Companies

Abstract

The market for acquiring technology companies is rife with information frictions. Although such frictions can stifle trading activity, they also provide room for strategic gain. We investigate this dual role of information frictions by exploiting an institutional reform that releases technological information to the public domain. Leveraging cross-sectoral variation in the magnitude of disclosure, we find an increase in acquisition activity and in the technological distance between matched pairings. In line with predictions from strategic factor market theory, however, we also find a disproportionate decline in acquirer returns on average. Our findings suggest that information disclosed through the reform facilitated exchange in the takeover market yet had a leveling effect on the returns to acquirers.

Keywords: Mergers and acquisitions, Patent disclosure, Information disclosure, Acquisition performance, AIPA

JEL Classification: O32, O34, G34, G14