What’s really in a deal? Evidence from textual analysis of M&A conference calls

Abstract

Using a sample of 814 transcripts from 2011 to 2018, we examine information within merger and acquisition conference calls. Textual analysis reveals significant differences between the content of M&A call transcripts and both contemporaneous corporate press releases and prior earnings conference calls. We find participation of target executive types in M&A calls occurs more frequently in diversifying acquisitions and is related to payment choice consistent with promoting managerial sectorspecific skills and incentive alignment, respectively. Retention of participating target executives is associated with a negative market reaction. We also identify a negative relation between textual sentiment and market reaction consistent with a response to higher levels of information asymmetry. Greater quantitative information, however, is positively related to the market reaction of M&A calls. We develop targeted M&A motive dictionaries to identify financial and strategic content within call transcripts.Consistent with prior literature on merger motivation, deals with more finance (strategy)-oriented words have a higher (lower) market reaction. Overall, our resultsshow that deal-related textual analysis explains a highly significant and economically important component of gains/losses to acquirers.

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

“…Rabier (2017), for example, categorizes deal motives based on the expected synergies the deal is likely to generate. Another stream of literature uses efficient motive classification framework to categorize deals as financial or strategic (Hu et al, 2021;Lim and Lee, 2016). A third way of inferring acquisition motives was presented by Gubbi and Elango (2016).…”

“…As numbers and words send signals about the company's future differently, recent research implies that the amount of numerical or quantitative information relative to the total information in textual disclosures significantly impacts the dissemination of information (Campbell et al, 2021). Quantitative disclosure in press releases provides salient information and additional insight into the decision-making process (Hu et al, 2021). Quantitative or numeric data signals the expected synergies that the deal is likely to create, estimates the growth potential of the acquisition, provides historical information related to sales, asset base, leverage, etc., about the target and the acquirer company, the market position that will be captured if the deal gets completed, and likewise.…”

“…Liberti and Petersen (2019), however, theorize that the easiest method to distinguish between the information type is to see whether the information is communicated through text (qualitative disclosures) or is recorded in numbers (quantitative disclosures). According to recent studies, since words and numbers convey information differently, it is crucial to consider the impact of quantitative and qualitative information independently (Campbell et al, 2021;Hu et al, 2021).…”

“…We add to previous research by looking at how qualitative and quantitative informational signals in press releases influences deal completion and duration outcomes. Most prior studies have investigated the impact of information on stock market returns (Hu et al, 2021;Zhou, 2017). In contrast, our study demonstrates the impact of such disclosures in the public-takeover period, i.e., the period after the deal announcement but prior to completion.…”

Critical Audit Matters: Possible Market Misinterpretation

“…Under the third approach, researchers write NLP rules that target specific events in the text of firm disclosures, such as, for example, M&A-related activity (Hu, Shohfi, and Wang 2021) or backlog disclosures (Feldman, Govindaraj, Livnat, and Suslava 2021).…”