Disagreement and the informativeness of stock returns: The case of acquisition announcements

Leonce L. Bargeron, Kenneth Lehn, Sara B. Moeller and Frederik Schlingemann ()

Journal of Corporate Finance, 2014, vol. 25, issue C, 155-172

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.

Keywords: Disagreement; Bidder returns; Implied volatility; Uncertainty; Informativeness; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:155-172

DOI: 10.1016/j.jcorpfin.2013.11.014

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