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

See all articles by Tingting Liu

Tingting Liu

Iowa State University

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Erin Towery

University of Georgia

Jasmine Wang

University of Virginia

Date Written: September 25, 2020

Abstract

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

Liu, Tingting and Shu, Tao and Towery, Erin and Wang, Jasmine, The Role of External Regulators in Mergers and Acquisitions: Evidence from SEC Comment Letters (September 25, 2020). Available at SSRN: https://ssrn.com/abstract=3464069 or http://dx.doi.org/10.2139/ssrn.3464069

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Tao Shu

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

Erin Towery

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Jasmine Wang (Contact Author)

University of Virginia ( email )

125 Ruppel Dr
306 Rouss and Robertson Hall
Charlottesville, VA 22903
United States

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