Analysts' forecast revisions and informativeness of the acquirer's stock after M&A transactions

Hubert de La Bruslerie

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Abstract: Are mergers and acquisitions significant events that develop informativeness? Is the informativeness process the same in different countries? Looking only at cumulative abnormal returns (CARs) is insufficient and the results are sometimes contradictory. To answer to these questions we use the concept of informativeness to assess whether acquisitions improve the private information content of stock prices. We consider a sample of mergers and acquisitions in the US and Europe over the 2000–2013 period. We gauge informativeness by using different measures. First, we refer to the use of the synchronicity measure introduced by Roll (1988). We also refer to Amihud's (2002) illiquidity ratio and the Llorente et al.'s (2002) measure of informed trading to proxy informativeness. We relate these three measures to the analysts' activity to forecast EPS. We show that the disclosure process is partially linked to the sign and magnitude of the acquirer's abnormal return (CARs) at the announcement date. Informativeness of the stock price does not improve systematically between before and after the acquisition. It changes asymmetrically depending on the upward or downward forecast revisions after the acquisition.

Keywords: Analysts; Earning forecasts; Forecast revision; Price informativeness; Synchronicity; Cumulative Abnormal Returns (CARs); Acquisitions (search for similar items in EconPapers)
Date: 2015-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01505385v1
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Published in 24th European Financial Management Association Annual Meeting - EFMA 2015, Jun 2015, Amsterdam, Netherlands. pp.61

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