Bidder Earnings Forecasts in Mergers and Acquisitions

Amel-Zadeh, Amir and Meeks, Geoff (2016) Bidder Earnings Forecasts in Mergers and Acquisitions. Working Paper.

Abstract

We provide evidence on the benefits and costs of voluntary earnings forecasts by bidding firms during acquisitions, shedding light on the motives and capital market consequences of voluntary disclosures. Specifically, we find a higher propensity of forecast disclosure when the acquisition is made with stock and during periods of high bidder valuations, when target shareholders are concerned about receiving overvalued shares. These forecasts are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium. Our results are most consistent with forecast disclosure positively affecting the value perceptions of target shareholders. The evidence, however, also suggests that the benefits of forecast disclosure only accrue to bidders that have built a credible forecasting reputation prior to the acquisition. Furthermore, we document that merger forecasts attenuate the generally negative investor reaction to acquisition announcements. Explaining why not all bidders forecast, we provide evidence on high forecasting costs, particularly higher likelihood of post-merger litigation.

Item Type: Other Working Paper
Keywords: management earnings forecasts, mergers, acquisitions, voluntary disclosures, merger forecasts, earnings per share, accounting
Subject(s): Accounting
Finance
Date Deposited: 17 Aug 2016 08:57
Last Modified: 21 Feb 2017 09:59
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6207

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