Disclosures About Key Value Drivers in M&A Announcement Press Releases: An Exploratory Study

Abstract

We investigate the association between disclosures about key value drivers (i.e., growth, synergies, human capital, brands, customers, and technology) in press releases announcing mergers and acquisitions (M&A) deals and acquirer stock returns upon the announcement. We find that, after controlling for the main characteristics of the deal, acquirers that use more terms about these value drivers in press releases exhibit more negative market returns around the M&A announcement. An increase of 10% in the number of terms used about generic value drivers is associated with a decrease in announcement market‐adjusted returns of approximately 43 basis points. The negative association between terms about value drivers and acquirer stock returns is stronger for larger deals. We also find that disclosures about these value drivers in M&A announcement press releases are consistent with the subsequent subjective valuation of intangible assets recognized in acquirers’ financial statements through the purchase price allocation. Our findings are relevant for investors attempting to interpret early signals about the performance of M&A and for managers communicating about these strategic investment decisions.

The differential impact of quantitative and qualitative information on outbound cross-border acquisition outcomes: evidence from emerging economies

“…Overconfident acquirers who make poor acquisition decisions are likely to engage in impression management to seek approval from stakeholders. In doing so, they may use more numbers in the press-release signalling their ability to generate superior returns from the acquisition (Filip et al, 2022). This could explain why the quantitative signals get negatively interpreted by the stakeholders.…”

“…The deal's press release is the first major information source in the M&A timeline because it is for the first time that the news of the acquisition is made public to all the stakeholders (Cao et al, 2023;Filip et al, 2022). The press release contains material information which provides beneficial signals to stakeholders to assess the worth of the deal.…”

“…The findings suggest that greater quantitative disclosures are not always associated with reducing information risk [3] and improving acquisition outcomes but can be interpreted negatively by stakeholders. We conduct additional tests to determine if the negative results are attributable to managerial overconfidence, as overconfident acquirers may use more numbers in the press-release signalling their ability to generate superior returns from the acquisition (Filip et al, 2022). We use two proxies for overconfidence: the tone of the press release and the uncertainty index.…”

“…Finally, we contribute to the literature by analysing acquisition press releases, an area, which has largely remained underexplored (Aalbers et al, 2021;Filip et al, 2022). We add to previous research by looking at how qualitative and quantitative informational signals in press releases influences deal completion and duration outcomes.…”

Mergers and acquisitions research in finance and accounting: Past, present, and future

“…9 Additionally, toeholds by acquirers in deals with strong target management resistance (Dai et al, 2021) as well as acquirer's management practices (Delis et al, 2022) are important determinants of value creation in deals. However, acquisitions of targets involved in socially undesirable activities (Guidi et al, 2020) and those with disclosure of key value drivers in announcement press-releases that portray managerial overconfidence (Filip et al, 2022) are 9 Alexandridis et al (2017) document that announcements of M&As, especially those of mega deals, create greater value for acquiring firms' shareholders post the global financial crisis. associated with negative announcement returns.…”