Do managers learn from the market? Firm level evidence in merger investment

Wenjing Ouyang and Samuel H. Szewczyk

Finance Research Letters, 2016, vol. 19, issue C, 139-145

Abstract: Chen, Goldstein, and Jiang (2007) first present direct evidence that managers learn from the market in internal capital investment decisions. This paper extends the research to merger investment. We report that stock price firm-specific information increases the sensitivity of merger investment to Tobin's Q. This relation is not driven by a particular subsample and is robust to diverse measures of stock price informativeness. It also holds when we control for related variables. Firms with more informative stock prices achieve better post-merger operating performance. Overall, these results suggest that managers learn new information from financial markets in making merger investment decisions.

Keywords: Stock price firm-specific informativeness; Merger investments; Managers learn from the market; Merger-investment-to-q sensitivity (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:19:y:2016:i:c:p:139-145

DOI: 10.1016/j.frl.2016.07.005

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