Do Insiders Learn from Outsiders? Evidence from Mergers and Acquisitions

Luo, Yuanzhi

doi:10.2139/ssrn.361520

Cited by 176 publications

(230 citation statements)

References 25 publications

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“…After a firm announces that it is going to acquire another firm, its stock price will react to reflect the beliefs in the market about whether the acquisition is a good idea or not. Luo (2005) provides evidence consistent with the idea that managers use the information in the reaction of the market to decide whether to cancel the acquisition.…”

Section: Managerial Investment Decisionssupporting

confidence: 70%

See 1 more Smart Citation

Market-Based Corrective Actions

Bond¹,

Goldstein²,

Prescott³

2009

Rev. Financ. Stud.

234

126

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Many economic agents take corrective actions based on information inferred from the market prices of firms' securities. Examples include directors and shareholder activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions. We provide an equilibrium analysis of such situations in light of a key problem: if the agent uses market prices when deciding on a corrective action, prices adjust to reflect this use and potentially become less revealing. We show that there is a strong complementarity between market information and the agent's information, so that a market-based corrective action leads to the agent's preferred outcome only when the information gap is not too large. We demonstrate that the type of security being traded matters, and discuss other measures that can increase the efficiency of learning from the market.

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Section: Managerial Investment Decisionssupporting

confidence: 70%

“…A growing empirical literature demonstrates that firm managers use information from the market price of their firms' securities when making corporate investment decisions (see Luo (2005), Chen, Goldstein and Jiang (2007), and Bakke and Whited (2008)). To fix ideas, consider an acquisition decision.…”

Section: Managerial Investment Decisionsmentioning

confidence: 99%

Market-Based Corrective Actions

Bond¹,

Goldstein²,

Prescott³

2009

Rev. Financ. Stud.

234

126

View full text Add to dashboard Cite

show abstract

“…For example, Luo (2005) finds that the positive correlation between announcement date return and the completion of mergers can be attributed to insiders' learning from outsiders after controlling for common information.…”

Section: Robustness Checksmentioning

confidence: 99%

The bright side of financial derivatives: Options trading and firm innovation

Blanco

Wehrheim

2017

Journal of Financial Economics

117

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Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

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“…More generally, our study contributes to the growing literature on the effects of secondary market stock prices on corporate financial decisions. Notable previous studies focus on investments (e.g., Wurgler, 2000;Durnev et al, 2004;Chen et al, 2007), CEO turnover (Defond and Hung, 2004), mergers and acquisitions (Luo, 2005), and cash savings (Fresard, 2012).…”

Section: Introductionmentioning

confidence: 99%

Dividend changes and stock price informativeness

Cesari

Huang

2015

Journal of Corporate Finance

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We investigate how private information in stock prices impacts quarterly dividend changes. We find that the positive relationship between past returns and current dividend changes strengthens when returns convey more private information. This finding is robust to the use of several price informativeness measures and the inclusion of managerial private information and stock overvaluation measures. Managers seem to learn new information from stock prices that they use when deciding on their dividend policy. This study highlights private information in stock prices as an important determinant of dividend policy and contributes to the literature on the real effects of financial markets.

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Do Insiders Learn from Outsiders? Evidence from Mergers and Acquisitions

Cited by 176 publications

References 25 publications

Market-Based Corrective Actions

Market-Based Corrective Actions

The bright side of financial derivatives: Options trading and firm innovation

Dividend changes and stock price informativeness

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