Does Investor Sentiment Drive M&As? (original) (raw)

Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements*

The Journal of Business, 2006

This paper examines the effects of mergers on bidding firms' stock prices. We find evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a "hot" merger market) or if the overall stock market is doing better. However, there is long run reversal. Long-run bidder stock returns are lower for mergers announced when the either merger or stock markets were hot at the time of the merger than for those announced at other times.

Analyst Sentiment around Takeover Announcements

SSRN Electronic Journal, 2006

This paper studies the sentiment among …nancial analysts around announcements of mergers and acquisitions (M&As). Analyst sentiment is measured using revisions of consensus earnings forecasts. We …nd that bidders are more likely to o¤er stock rather than cash in their takeovers when analyst sentiment is more favorable prior to their takeover announcements. However, the favorable sentiment on stock bidders experiences a downward swing subsequent to takeover announcements. The industry peers of stock bidders also face more favorable pre-announcement analyst sentiment than the industry peers of cash bidders. Unlike the …rm-speci…c sentiment on stock bidders, the industry-wide sentiment persists even after bidders announce their takeovers. Finally, we …nd that stock bidders and their industries face more favorable analyst sentiment compared to targets and their industries prior to takeover announcements. Our evidence on analyst sentiment in M&As is consistent with ine¢ cient market theories such as the investor sentiment explanation in Shleifer and Vishny (2003). But our evidence cannot be fully explained by e¢ cient market theories such as the asymmetric information explanation in Hansen (1987) and Fishman (1989) and the explanations based on earnings management or a¢ liated analysts'biased forecasts.

Stock price reaction to M&A announcements: Evidence from the London Stock Exchange

2007

We investigate short-tem investor reaction to initial press releases regarding mergers and acquisitions in the London Stock Exchange. Announcements are sorted by whether the firm is a bidder or a target, by whether the announcement refers to an acquisition or a merger, by investor sophistication, by the level of information disclosure, by whether the announcements generate a positive or negative reaction, and by whether the initial reaction is strong or of a lower magnitude. The results suggest that investors generally react efficiently; however, they may at times overreact to merger and acquisition announcements and reverse their behavior within a few days. Further analysis indicates that the documented short-term reversals are due to very few information signals (about 10% of the sample) that generate a high magnitude reaction on the event day, i.e. signals with strong information content. The only pattern that is persistent is a return momentum for announcements about smaller acq...

Market Optimism and Merger Waves

Managerial and Decision Economics, 2012

One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We argue that stock market booms and merger waves are both driven by increases in optimism in financial markets, and discuss two behavioral hypotheses about mergers -the managerial discretion and overvaluation hypotheses -that claim that merger waves are driven by market optimism. We also develop the hypothesis and present evidence that optimism in bond markets can cause mergers. We also briefly consider and reject two neoclassical hypotheses that claim to account for mergers waves. Empirical support for the managerial theory is provided by evidence that the amounts of assets acquired by companies increase as optimism in financial markets increases, and that the returns to acquiring companies' shareholders are inversely related to market optimism at the time of mergers. Our measures of market optimism are also shown to explain managerial choices of finance for mergers. Thus, we find that optimism in financial markets explains the amount of assets acquired through mergers at a point in time, the choice of means for financing the mergers, and the returns to the acquirers' shareholders following the mergers.

The Impact Of Announcements Of Mergers And Acquisitions (M&A) On Stock Returns

International Journal of Artificial Intelegence Research, 2024

One of the corporate actions carried out by companies is mergers and acquisitions (M&A). This research aims to examine the impact of merger and acquisition (M&A) announcements on stock returns of banking companies listed on LQ 45 for the 2011-2021 period. This research uses the event study method, with 3 banking companies from 8 merger and acquisition (M&A) events, with an event window of 91 days, namely 45 days pre-announcement, 1 day of announcement and 45 days post-announcement. The results of this research show that the market responded positively to 8 merger and acquisition (M&A) announcement events. The benefit of this research is for policy makers to stimulate stock prices with the help of various announcements from their corporate action strategies. Investors will be helped in understanding stock market mechanisms in making wise investment decisions before reacting to corporate actions. Meanwhile, policy makers are interested in influencing stock prices and investors are interested in the composition of risk-return parameters in their portfolios. This research will act as an important investment tool for both.

Stock price reaction to mergers and acquisitions announcement

TRANS Asian Journal of Marketing & Management Research (TAJMMR), 2019

This research work examines stock price reaction to Mergers & Acquisitions announcements to identify the post and pre-facto effect of M&A announcements on the stock prices of the bidding or acquiring firms. The investigation has been conducted using the traditional event study methodology. The Cumulative Average Abnormal Returns (CAAR) of the bidding firm's stock prices in different event windows have been analysed. paired sample analysis is done by comparing the pre and post-announcement returns as well as pre and post effective day returns of the acquiring firms’ stock prices in the event window of 3, 5, 10 and 15days. Across all the event windows, bidding firm's stock price yields positive CAAR that is significantly different from zero. It was found that the post announcement returns are significantly greater than the pre-announcement returns and post effective day returns are higher than pre effective day returns, indicative of the immediate market response to the inform...

Uncertainty Triggers Overreaction: Evidence from Corporate Takeovers

Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to public signals. We test this prediction in a M&A’s framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, they generate highly positive and significant gains following the announcement of private stock, public cash and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition.

Investor Sentiment Measurement of Merger and Acquisition Companies in Indonesia

Information Management and Business Review, 2013

This research is conducted about how to measure the investor sentiment, when the prospects of merger or acquisition have completed. The measurement is done by examining the likelihood of success or failure, which can determine the investment strategy, while holding a target when it is still occurred. It is to see whether the positive investor sentiment should increase or decrease when the probability of the acquisition’s success increases or decreases and that sentiment will also vary with events during the period of offering. The purpose of this paper is to make a probability model that will describe about the investor sentiment behavior during the merger and acquisition process in Indonesia. This model will also separate the effect of Indonesia markets and target company’s movement. The samples are taken from the companies that listed in Jakarta Stock Exchange from 2009 and 2012. The information that we used in this research is the public news from the Regulator Committee of Busin...

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

SSRN Electronic Journal, 2020

Mergers and acquisitions (M&As) are mainly a mechanism used in the Latin American banking industry to carry out business consolidation. This paper focuses on the effect of M&A announcements on stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method. We find that acquirers and target banks have a statistically significant CAR, however, the sign is inconclusive. Rivals of acquirers and targets are not affected by M&A announcements. In general, we observe that EIV is negative for acquirers, targets, and rivals. Finally, we estimate a multivariate GARCH model to isolate the effects of co-movements of volatility between the acquirer and the target, and we find that the results remain qualitatively equal.

Stock market bubble effects on mergers and acquisitions

The Quarterly Review of Economics and Finance, 2010

We investigate if and how mergers and acquisitions are affected by trends in the capital market, and particularly by a stock market bubble. Our main findings indicate that while the prevalence of M&A increased during the technology bubble, the pricing of M&A did not change. Moreover, the bursting of the bubble seems to have led to further cautiousness by investors, which extended throughout the years subsequent to the bursting of the bubble, even when prices on the exchange had rebounded. While we do not find robust evidence for changes in price multiples outside the exchange in concomitance with the changes on the exchange, we document changes in the information used by investors to value their targets. It seems that investors experienced a learning process in terms of the type of variables preferred, appearing to be more cautious since the bubble burst. This learning process investors undergo in concomitance to processes in the market seems to result in their being less affected by periodical or cyclical sentiments of euphoria and depression in the capital market.