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Can Analysts Analyze Mergers?

Author

Listed:
  • Hassan Tehranian

    (Finance Department, Boston College, Chestnut Hill, Massachusetts 02467)

  • Mengxing Zhao

    (Alberta School of Business, University of Alberta, Edmonton, Alberta T6G 2R6, Canada)

  • Julie L. Zhu

    (Accounting Department, Boston University School of Management, Boston, Massachusetts 02215; and Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, 200030 Shanghai, China)

Abstract

After the completion of a merger and acquisition (M&A) transaction, the target firm is delisted, but some analysts who covered it retain coverage of the merged firm. We hypothesize that this decision is based on two factors: the analyst's ability to cover the merged firm and his or her assessment of the M&A deal. Consistent with these hypotheses, we find that the remaining target analysts provide more accurate earnings forecasts and more optimistic stock recommendations and growth forecasts for the merged firms than do the remaining acquirer analysts. We also find that a higher percentage of target analysts choosing to cover the merged firm is associated with better operating and long-term stock performance of that firm, but we do not find this relation with acquirer analysts. Our results extend the literature by showing that target analysts' coverage decisions reveal valuable information about a merged firm's future performance. This paper was accepted by Wei Jiang, finance.

Suggested Citation

  • Hassan Tehranian & Mengxing Zhao & Julie L. Zhu, 2014. "Can Analysts Analyze Mergers?," Management Science, INFORMS, vol. 60(4), pages 959-979, April.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:4:p:959-979
    DOI: 10.1287/mnsc.2013.1796
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    2. Huang, Allen H. & Lin, An-Ping & Zang, Amy Y., 2022. "Cross-industry information sharing among colleagues and analyst research," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    3. Andersson, Patric & Hellman, Niclas, 2020. "Analysts’ evaluations of acquisitions: Swedish survey evidence on IFRS knowledge and the use of accounting information for valuation purposes," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 41(C).
    4. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
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    6. Liu, Yu & Yang, Lingxuan & Xiong, Lu, 2023. "Performance commitments and the properties of analyst earnings forecasts: Evidence from Chinese reverse merger firms," International Review of Financial Analysis, Elsevier, vol. 89(C).
    7. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Other publications TiSEM 9baa3ffc-67cb-4647-9da5-a, Tilburg University, School of Economics and Management.
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