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

Abstract

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

Luo, Yuanzhi, Learning from the Market as a Motive for Disclosure: The Case of Takeover Announcement Timing (November 2001). Available at SSRN: https://ssrn.com/abstract=362640 or http://dx.doi.org/10.2139/ssrn.362640

Yuanzhi Luo (Contact Author)

LYZ Capital Advisors LLC ( email )

One Manhattanville Rd
Purchase, NY 10577
United States

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