Treading Lightly: Peer Firms' Strategic Nondisclosure during Merger Antitrust Reviews

Abstract

We study whether and how firms strategically alter their disclosures to influence the regulatory outcomes of mergers that involve their peers. We hypothesize and find evidence that industry peers who stand to benefit from market consolidation refrain from issuing positive news press releases during antitrust review periods, as such disclosures may signal peers' market power or profitability and trigger increased antitrust scrutiny. Strategic nondisclosure is concentrated among peers who are likely to benefit most from the merger (i.e., peers with a high market share, positive market reactions to the merger announcement, and improved ex-post operating performance). Moreover, we find that peers' strategic nondisclosure is associated with faster termination of the review, suggesting that the strategy facilitates merger completion. Our findings extend prior studies on disclosure spillovers by showing that firms incorporate regulatory events involving their peers into their disclosure decisions.

Keywords: mergers and acquisitions, antitrust, peer firm disclosures

JEL Classification: D62, D83, G34, K21, L40, M41