The impact of analysts on acquirer stock price volatility

Kyeong-Seop Choi

Chapter 4 in A Research Agenda for Mergers and Acquisitions, 2024, pp 87-104 from Edward Elgar Publishing

Abstract: Financial analysts provide information about the companies they cover. Research suggests that analyst coverage can predict the completion of acquisitions and their long-term performance. However, the impact of analyst coverage on both acquiring and target firms in the immediate aftermath of these announcements is often overlooked. Acquisitions present an information asymmetry problem to investors, analyst coverage of acquirers, targets, or both may mitigate investor uncertainty. I investigate whether the reduction of information asymmetry resulting from analyst coverage leads to increased stock price volatility for the acquiring firm when an acquisition is announced. This assumption is based on the idea that stock price volatility is influenced by market efficiency. I find greater volatility in the acquirer’s stock prices when the target firm is covered by analysts. This aligns with information economics, or more information available about a previously less-known target firm from analysts can reduce information asymmetry for investors.

Keywords: Business and Management; Economics and Finance (search for similar items in EconPapers)
Date: 2024
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