The Informational Consequences of Good and Bad Mergers

Abstract

M&As have informational consequences beyond their immediate effects on stock prices. We find that acquirers receiving a positive market reaction to their M&A announcements experience an increase in the richness of their information environment, consistent with the theoretical predictions of Dow et al. (2017) [Dow, James, Itay Goldstein, and Alexander Guembel. 2017. “Incentives for Information Production in Markets Where Prices Affect Real Investment.” Journal of the European Economic Association 15 (4): 877–909]. Such acquirers attract more informed trading and more analysts in the post-announcement period. Their investments also become more sensitive to the information revealed in their share prices.

Keywords: Stock price informativeness; Endogenous information production; Mergers and Acquisitions; Analyst coverage; Tobin’s Q

JEL Classification: G14, G31, G34