The change in information uncertainty and acquirer wealth losses

Merle Erickson, Shiing-Wu Wang and X. Frank Zhang ()
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Merle Erickson: University of Chicago
Shiing-Wu Wang: University of Southern California
X. Frank Zhang: Yale School of Management

Review of Accounting Studies, 2012, vol. 17, issue 4, No 6, 913-943

Abstract: Abstract A large body of literature demonstrates that acquisitions are on average value destroying for the acquirer. We investigate whether the change in the acquirer’s information uncertainty contributes to acquirer wealth losses. Information uncertainty affects the discount rate (the cost of capital), which in turn influences stock price. Our results indicate that acquisitions lead to increases in information uncertainty, as proxied by analysts’ earnings forecast dispersion. We also find that the change in information uncertainty is negatively related to acquirer long-term stock performance, after controlling for the acquirer’s fundamentals. Taken together, this evidence is consistent with the conclusion that increases in information uncertainty resulting from acquisitions contribute to acquirer post-acquisition wealth losses

Keywords: Information uncertainty; Cost of capital; Stock return; Merger; Acquisition (search for similar items in EconPapers)
JEL-codes: G12 G14 G34 M41 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11142-012-9184-9

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