Managerial Expectations of Synergy and the Performance of Acquiring Firms: The Contribution of Soft Data

James Cicon, Jonathan Clarke, Stephen P. Ferris and Narayanan Jayaraman

Journal of Behavioral Finance, 2014, vol. 15, issue 3, 161-175

Abstract: This study examines whether the “soft” information present in merger and acquisition (M&A) announcement press releases contains incrementally valuable news relative to traditional “hard” data. Using the methodology of Loughran and McDonald [2011], we construct measures of synergy expectations and managerial optimism for more than 1,200 M&A announcements over the period 1995–2007. We find that synergy expectations are positively related to announcement period returns, longer-run performance, and the market's reaction to quarterly earnings announcements. Managerial optimism is insignificant for explaining a merger's subsequent performance. We conclude that the soft information contained in M&A announcements concerning synergy expectations can provide useful information to investors.

Date: 2014
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DOI: 10.1080/15427560.2014.941060

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