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The impact of analyst coverage on partial acquisitions: Evidence from M&A premium and firm performance in China

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  • Li, Ying
  • Lu, Miao
  • Lo, Y. Ling

Abstract

In this paper, we examine how analyst coverage affects mergers and acquisitions in China. By using partial acquisitions in our study, we are able to directly examine the post-acquisition performance of the targets. Our results are robust and consistent with our hypotheses. Analyst coverage can effectively reduce information asymmetry. As a result, targets with high analyst coverage experience more immediate and accurate price correction in the short run, as indicated in the acquisition premium. In the long run, targets with high analyst coverage outperform targets with low analyst coverage up to two years post acquisition, based on EPS. Our results indicate analyst coverage can effectively (1) speed up price discovery by bringing targets' stock prices closer to their equilibria, (2) promote market efficiency by reducing information asymmetry, (3) help acquirers make better asset allocation and investment decisions in the acquisition market by reducing information asymmetry, and (4) support targets' long-term performance by providing them with better access to external resources.

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  • Li, Ying & Lu, Miao & Lo, Y. Ling, 2019. "The impact of analyst coverage on partial acquisitions: Evidence from M&A premium and firm performance in China," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 37-60.
    • Handle: RePEc:eee:reveco:v:63:y:2019:i:c:p:37-60
    DOI: 10.1016/j.iref.2018.08.004
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