Learning from the Market as a Motive for Disclosure: The Case of Takeover Announcement Timing
38 Pages Posted: 21 Feb 2003
Date Written: November 2001
This paper investigates why some firms disclose their takeover plans after they have signed definitive merger agreements, but others do so prior to such agreements. Evidence shows that firms choose this timing strategically. An announcement before a definitive agreement allows for more firm discretion in canceling an ex post bad deal, whereas one after such an agreement entails a higher level of mutual commitment and delays information revelation to potential competitors both on the corporate control and the product market. Firms balance the two information considerations in making this timing decision. Specifically, firms are more likely to postpone their M&A disclosures until after a definitive agreement (i) when potential competition for the target is higher, (ii) when the bidder has a stronger analyst following, (iii) when the deal happens within high technology industries, (iv) when the bidder is a high-growth firm, and (v) when the bidder is a bigger firm. Data also show that agency/hubris considerations, or procedural considerations that lawyers advocate, do not explain this decision.
Keywords: Mergers and Acquisitions, Disclosure, Announcement Timing
JEL Classification: G34 D8
Suggested Citation: Suggested Citation