Risks in Mergers and Acquisitions: Evidence from Acquirers' Mandatory Risk Factor Disclosure *

Abstract

We use the acquirer's mandatory risk factor disclosure in merger filings to study the composition of downside risks in mergers and acquisitions from acquirers' perspective and the effects of major risk factors on post-merger outcomes. An unsupervised topic modeling approach identifies four major risk factors: product risk, valuation risk, accounting risk, and dilution risk, which together account for nearly half of the acquirer's risk disclosure. We find evidence that, while major risk factors generally have negative impacts on the acquirer's post-merger outcomes-such as integration, performance volatility, and performance level-dilution risk has a positive impact on the acquirer's post-merger outcomes. Additionally, the risk factors have varying associations with the specific post-merger integration issues identified by ChatGPT.

Keywords: risks in M&A, S-4 risk factor disclosure, product risk, valuation risk, accounting risk, dilution risk, post-merger outcomes, ChatGPT JEL Classification: G32, G34, G38

JEL Classification: G32, G34, G38