Manager Sentiment, Deal Characteristics, and Takeover Performance

Abstract

Extensive literature has discussed the driving forces of takeover activities, including investor sentiment, liquidity, and fundamental shocks. We examine how manager sentiment affects takeover characteristics and long-term performance using data from textual analysis based on 10-K and 10-Q filings. Our findings demonstrate that manager sentiment has a strong positive predictive power for takeover activities, and high manager sentiment decreases the long-term performance of takeover deals. Moreover, we show that high-sentiment managers tend to undertake large deals, decrease the all-stock payment, acquire hard-to-value targets, and offer high target valuation, which implies the over-investment channel for the underperformed high-sentiment deals.

Keywords: manager sentiment; deal characteristic; takeover performance; textual analysis

JEL Classification: G34, G30, G02