The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals

Lingwei Li and Huai Zhang

Journal of Business Finance & Accounting, 2021, vol. 48, issue 3-4, 692-717

Abstract: Shareholders’ approval rates on M&A deals are informative because they are predictive of the acquirer's post‐merger operating performance. Since the passing of the deal is salient information while the specific approval rate is not, investors may misprice the detailed voting outcome due to their limited attention. We find that post‐merger abnormal stock returns are significantly higher for acquirers receiving higher approval rates: a one percentage point increase in the approval rate is associated with a 48 basis point increase in the market‐adjusted stock return in the year after the merger is completed. Consistent with mispricing, the voting outcome reliably predicts post‐merger earnings announcement returns and analyst forecast errors. What's more, the association between the voting outcome and post‐merger stock returns is stronger when investors’ attention to the voting outcome is distracted by same‐day earnings announcements, when the marginal investor is less likely to be sophisticated, and when investors have greater pre‐merger disagreement. Short sale constraints do not seem to explain our findings. Overall, our results suggest that detailed proxy voting outcomes are neglected by investors.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/jbfa.12486

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:bla:jbfnac:v:48:y:2021:i:3-4:p:692-717

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().