Do M&A Delistings Impact U.S. Capital Markets? Evidence of Negative Information Externalities for Industry Peer Firms

Abstract

This study examines whether delistings due to mergers and acquisitions (i.e., M&A delistings) result in negative information externalities for industry peer firms. Prior research shows that firms’ disclosures provide useful information spillovers to other firms in the same industry; importantly, M&A delistings decrease the number of listed firms in an industry. We document that M&A delistings are associated with a decrease in the quality of analysts’ information environment (increases in absolute forecast errors and dispersion) for industry peer firms; further, this effect is greater when the delisted target firm is larger relative to its industry. Multiple additional analyses, including a comparison of individual analysts who previously followed the delisted firm with other analysts, and a falsification test using non-completed M&A, indicate that our main results are not due to endogeneity bias from correlated omitted industry shocks. Our results show negative information externalities from M&A delistings that persists for at least three years and provide evidence regarding the broader effects of M&A delistings for U.S. capital markets.

Keywords: M&A Delisting, Negative Information Externality, Analyst Information Environment, Industry Peer Firms, Spillovers

JEL Classification: G14, G18, G34, M40