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The effects of mergers and acquisitions on the information production of financial markets

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  • Bade, Marco

Abstract

This paper shows that mergers and acquisitions (M&As) create opposing effects on the information production of financial markets. A merger between two related firms may generate technological synergy and profitability gains. This results in greater expected trading profits of speculators and incentivizes them to produce private information feeding back into investments. However, when merging firms announce the M&A deal, they typically disclose internal information. This levels the playing field among traders and eliminates speculators’ incentive to produce information. The resulting tradeoff determines the equilibrium information production of financial markets.

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  • Bade, Marco, 2017. "The effects of mergers and acquisitions on the information production of financial markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 240-248.
    • Handle: RePEc:eee:quaeco:v:65:y:2017:i:c:p:240-248
    DOI: 10.1016/j.qref.2016.09.006
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    References listed on IDEAS

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    Cited by:

    1. Marco Bade, 2020. "Determinants of IPO-firms’ merger appetite," Review of Managerial Science, Springer, vol. 14(1), pages 193-219, February.

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    More about this item

    Keywords

    M&A; Information production; Announcement; Market efficiency; Real efficiency;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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