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The effect of bidder conservatism on M&A decisions: Text-based evidence from US 10-K filings

Lookup NU author(s): Dr Yousry Ahmed

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Abstract

This paper examines whether and how bidders' conservative tone in 10-K filings influences the subsequent mergers and acquisitions (M&A) investment decisions of these US firms from 1996 to 2013. Based on 39,260 firm-year observations, we find, consistent with behavioural consistency theory, that conservative bidders are less likely to engage in M&A deals. Further, those that decide to engage in M&As are likely to acquire public targets and within-industry firms. These bidders are inclined to employ more stock acquisitions than cash acquisitions. Our results also indicate that conservative bidders experience abnormally poor stock returns around the announcements of M&A investments. This provides new insights on the mechanism through which bidders' sentiments influence shareholders' wealth. Overall, these findings highlight the implications of the textual sentiment of corporate disclosure for the forecasting of corporate investment and financing decisions. Our results have practical implications, since they shed light on the value relevance of the information content of major Securities Exchange Commission (SEC)-mandated 10-K filings.


Publication metadata

Author(s): Ahmed Y, Elshandidy T

Publication type: Article

Publication status: Published

Journal: International Review of Financial Analysis

Year: 2016

Volume: 46

Pages: 176–190

Print publication date: 01/07/2016

Online publication date: 25/05/2016

Acceptance date: 20/05/2016

ISSN (print): 1057-5219

ISSN (electronic): 1873-8079

Publisher: Elsevier BV

URL: https://doi.org/10.1016/j.irfa.2016.05.006

DOI: https://doi.org/10.1016/j.irfa.2016.05.006


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