The Role of External Regulators in Mergers and Acquisitions: Evidence from SEC Comment Letters
68 Pages Posted: 7 Oct 2019 Last revised: 28 Sep 2020
Date Written: September 25, 2020
This study examines the role of the Securities and Exchange Commission (SEC) in mergers and acquisitions (M&As) involving publicly traded target firms. We first document that comment letters are more likely in M&As when deal characteristics suggest greater target firm shareholder welfare risk, target firms have weaker corporate governance, or target firms have weaker financial reporting quality. Our main results suggest that M&As receiving comment letters have an increased likelihood of deal completion and positive deal price revision, consistent with the SEC review process reducing information asymmetry, albeit at the cost of delaying the M&A process. We address endogeneity concerns using multiple approaches. Our findings that the SEC review process reduces information asymmetry in M&As provide new insight into the real economic consequences of disclosure regulation.
Keywords: Information asymmetry; M&A; SEC; Comment letters; Shareholder welfare; Corporate governance; Deal outcomes
JEL Classification: M41; G34; K22
Suggested Citation: Suggested Citation