“Squirming Under the Spotlight? The Effect of Analyst Scrutiny on M&A Announcements” by Professor Ravi Madhavan
STRATEGY AND IB SEMINAR
Professor Ravi Madhavan
Professor of Business Administration
Joseph M. Katz Graduate School of Business
University of Pittsburgh
Although much is known regarding the stock market impact of M&A announcements, the process and behavioral considerations underlying that impact continue to be unclear. Market response to M&A announcements aggregates analyst and investor judgment about the value creation potential of the deal being announced. Thus, the informational context of the announcement is arguably relevant to the judgment and hence to the market response. Adopting a behavioral perspective of analyst scrutiny of M&A deals, we examine how the market response to deal announcements varies with the information characteristics of the announcement. Specifically, we hypothesize that “rich media” announcements facilitate closer scrutiny by analysts who may be inclined to be skeptical, and thus may depress the market response. Data from S&P 500 firms’ M&A announcements provide support for the model.