Closing the deal: Managerial response to short sellers following M&A announcement

Wei Shi, David R. King and Brian L. Connelly

Journal of Business Research, 2021, vol. 130, issue C, 188-199

Abstract: When firms announce a merger or acquisition, shareholders, analysts, and the media respond. Firms are less likely to complete a deal when those reactions are negative. We, however, uncover a scenario where the opposite occurs. When short interest (i.e., the percentage of shares shorted) increases following announcement of a deal, managers at firms become more likely to complete the deal. We theorize that short selling after deal announcement constitutes an ego threat to managers that induces escalation of commitment. This is because short sellers are adversarial, or they win when stock prices fall. Moreover, we argue that this managerial response is heightened in situations where managers are more likely to be defensive about their decisions, such as when the deal is large or the target firm is publicly-traded. Our empirical findings lend support to the arguments.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148296321001946
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:130:y:2021:i:c:p:188-199

DOI: 10.1016/j.jbusres.2021.03.030

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().