Can Analysts Analyze Mergers?

Forthcoming at Management Science

34 Pages Posted: 19 Mar 2007 Last revised: 24 Jul 2013

See all articles by Hassan Tehranian

Hassan Tehranian

Boston College - Department of Finance

Mengxin Zhao

Securities and Exchange Commission (SEC)

Julie Lei Zhu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Multiple version iconThere are 2 versions of this paper

Date Written: July 17, 2013

Abstract

After the completion of an M&A transaction, the target firm is delisted but some analysts who covered it retain coverage of the merged firm. We hypothesize that this decision is based on two factors—the analyst’s ability to cover the merged firm and his or her assessment of the M&A deal. Consistent with these hypotheses, we find that the remaining target analysts provide more accurate earnings forecasts and more optimistic stock recommendations and growth forecasts for the merged firms than the remaining acquirer analysts do. We also find that a higher percentage of target analysts choosing to cover the merged firm is associated with better operating and long-run stock performance of that firm, but do not find this relation with acquirer analysts. Our results extend the literature by showing that target analysts’ coverage decisions reveal valuable information about a merged firm’s future performance.

Keywords: Mergers and acquisitions, analyst coverage, investment bank, forecast accuracy, stock performance

JEL Classification: G24, G29, G34

Suggested Citation

Tehranian, Hassan and Zhao, Mengxin and Zhu, Lei, Can Analysts Analyze Mergers? (July 17, 2013). Forthcoming at Management Science. Available at SSRN: https://ssrn.com/abstract=971183 or http://dx.doi.org/10.2139/ssrn.971183

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Lei Zhu (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

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