How Do Equity Analysts Impact Takeovers?

45 Pages Posted: 15 Apr 2020

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Tingting Liu

Iowa State University

Micah S. Officer

Loyola Marymount University - Department of Finance

Date Written: March 13, 2020

Abstract

Firms covered by more analysts are more likely to become takeover targets and more likely to enter deals in which their acquirers initiate private merger negotiations. Moreover, when equity analysts’ pre-acquisition price forecasts imply greater target undervaluation, target firms are more likely to initiate their own sale, takeover premiums are higher, those premiums tend to be revised upwards during private merger negotiations, and acquirer firms use less cash to structure the transaction. These results imply a material role for equity analysts during the M&A process: their coverage affects takeover probabilities while their price forecasts influence merger premiums and the merger consideration. Our findings support both investor recognition and information generation theories about the role of equity analysts in financial markets.

Keywords: Mergers and acquisitions; Private merger negotiations; Analyst coverage; Analyst price forecasts

JEL Classification: G24, G34, M40

Suggested Citation

Fich, Eliezer M. and Liu, Tingting and Officer, Micah S., How Do Equity Analysts Impact Takeovers? (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3555333 or http://dx.doi.org/10.2139/ssrn.3555333

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Micah S. Officer

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

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