Stock price informativeness on the sensitivity of strategic M&A investment to Q

Document Type

Article

Publication Title

Review of Quantitative Finance and Accounting

ISSN

0924-865X

Volume

50

Issue

3

DOI

10.1007/s11156-017-0645-x

First Page

745

Last Page

774

Publication Date

4-1-2018

Abstract

Using a strategic merger sample that covers the period from 1985 to 2011, we find that the acquirer’s stock price firm-specific information, the new information created by investors about the value of firm fundamentals, increases the positive sensitivity of strategic merger investment to the acquirer’s Q; the target’s stock price firm-specific information increases the negative sensitivity of merger investment to the target’s Q. These results suggest that managers learn from financial markets in identifying strategic merger investment opportunities by transferring assets from poorly managed firms to well managed firms. In addition, the target’s stock price firm-specific information itself increases the acquisition size, indicating that informed acquirer managers are more likely to take out large merger investment. Last but not the least, stock price informativeness increases merger synergies and post-merger performance, suggesting that informed managers make better merger investment that increases shareholder value. Our study contributes to the recent increasing stream of studies on managerial learning from the market.

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