Do corporations learn from mispricing? Evidence from takeovers and corporate performance

Samer Adra and Leonidas G. Barbopoulos

International Review of Financial Analysis, 2020, vol. 68, issue C

Abstract: In this article we form the simple prediction that mispricing encourages traders to collect costly information that guides managerial decisions at corporate level. Our findings support this prediction based on evidence derived from both the US market for corporate control and the overall variation in aggregate corporate profits. The trading activity in response to the temporary mispricing of the merging companies provides useful information that leads to the design of high-synergy deals. Such synergies are reflected in an increase in the announcement period acquirer abnormal returns and are not reversed in the long-run. At the market-wide level, our results suggest that the growth in the overall stock trading volume in response to market mispricing is associated with high future corporate profit growth. Overall, after controlling for several economic and financial conditions, the temporary mispricing in a developed and generally efficient stock market stimulates informative trading, ultimately leading to value- and performance-enhancing corporate decisions.

Keywords: Mispricing; Information; Acquisitions; Acquirer returns; Corporate profits (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:68:y:2020:i:c:s1057521917300972

DOI: 10.1016/j.irfa.2017.08.006

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