The Information Content of Target Price Forecasts: Evidence from Mergers and Acquisitions

Forthcoming Journal of Business, Finance and Accounting https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12521

62 Pages Posted: 25 Mar 2021

See all articles by Tuan Quoc Ho

Tuan Quoc Ho

University of Bristol - School of Economics, Finance and Management

Ruby Brownen‐Trinh

University of Bristol

Fangming Xu

University of Bristol

Date Written: September 26, 2020

Abstract

This paper investigates the informativeness and value relevance of analyst target prices in the context of mergers and acquisitions (M&A). Our results indicate that firms with high 12-month ahead target prices relative to current stock prices are more likely to become a takeover target and offer premium and acquirers’ announcement returns are positively associated with firms’ target price premium. We also show that a long-short trading strategy formed on target prices and firms’ takeover likelihood generates economically significant returns. Our results are robust to a battery of additional analysis, and the informativeness of target prices is not subsumed by other analyst-forecast outputs such as earnings forecasts and recommendations. Overall, our findings suggest that analysts convey valuable information through target price forecasts, which are useful for participants in the corporate takeover markets.

Keywords: Target price, analyst forecast, mergers, acquisitions, takeover likelihood, offer premium

JEL Classification: G14, G24, G34

Suggested Citation

Ho, Tuan Quoc and Brownen‐Trinh, Ruby and Xu, Fangming, The Information Content of Target Price Forecasts: Evidence from Mergers and Acquisitions (September 26, 2020). Forthcoming Journal of Business, Finance and Accounting https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12521, Available at SSRN: https://ssrn.com/abstract=3742824 or http://dx.doi.org/10.2139/ssrn.3742824

Tuan Quoc Ho

University of Bristol - School of Economics, Finance and Management ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Ruby Brownen‐Trinh

University of Bristol

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Fangming Xu (Contact Author)

University of Bristol ( email )

School of Economics, Finance and Management
The Priory Road Complex, Priory Road
Bristol, BS8 1TU
United Kingdom
0044+(0)1173941503 (Phone)

HOME PAGE: http://www.bris.ac.uk/efm/people/fangming-xu/overview.html

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