Abstract
We examine whether disagreement between managers and investors, in the context of mergers and acquisitions, affects the information contained in bidder returns. We test the disagreement hypothesis, which posits that disagreement causes investors to be less certain about their revaluation of acquiring firms, making bidder returns less informative. Consistent with this hypothesis, we find an inverse relation between bidder returns, which proxy for the degree of disagreement, and the change in the bidders' implied volatility. Also consistent with the hypothesis, we find that the significant inverse relation between bidder returns and the change in implied volatility holds only for cases of negative bidder returns. We test for alternative explanations of this relation, but continue to find robust support for the disagreement hypothesis. Finally, the relation between bidder returns and the likelihood of deal completion is stronger when announcement returns are more informative, suggesting managers "listen to the market" more when the market response is more informative.
Original language | English |
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Pages (from-to) | 155-172 |
Number of pages | 18 |
Journal | Journal of Corporate Finance |
Volume | 25 |
DOIs | |
State | Published - Apr 2014 |
Keywords
- Bidder returns
- Disagreement
- Implied volatility
- Informativeness
- Mergers and acquisitions
- Uncertainty
ASJC Scopus subject areas
- Business and International Management
- Finance
- Economics and Econometrics
- Strategy and Management