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Do Stock Analysts Influence Merger Completion? An Examination of Postmerger Announcement Recommendations

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  • David A. Becher

    () (Department of Finance, LeBow College of Business, Drexel University, Philadelphia, Pennsylvania 19104; and Wharton Financial Institutions Center, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Jonathan B. Cohn

    () (Finance Department, University of Texas at Austin, Austin, Texas 78712)

  • Jennifer L. Juergens

    () (Department of Finance, LeBow College of Business, Drexel University, Philadelphia, Pennsylvania 19104)

Abstract

This paper investigates the effects of analyst recommendations issued after a merger announcement on deal completion. We find the probability of completion increases (decreases) with the favorability of acquirer (target) recommendations. Results from instrumental variables tests support causality running from recommendations to merger outcomes. Additional tests suggest that these relations are driven by target shareholders reassessing the merger offer in response to movements in acquirer and target valuations. We also find that favorably recommended firms in a proposed merger underperform following deal resolution, suggesting that investors overreact to postmerger announcement recommendations. This paper was accepted by Wei Jiang, finance .

Suggested Citation

  • David A. Becher & Jonathan B. Cohn & Jennifer L. Juergens, 2015. "Do Stock Analysts Influence Merger Completion? An Examination of Postmerger Announcement Recommendations," Management Science, INFORMS, vol. 61(10), pages 2430-2448, October.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:10:p:2430-2448
    DOI: 10.1287/mnsc.2014.2065
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    File URL: http://dx.doi.org/10.1287/mnsc.2014.2065
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    References listed on IDEAS

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    Cited by:

    1. Minzhi Wu & Mark Wilson & Yi Wu, 2017. "Was the Global Settlement Effective in Mitigating Systematic Bias in Affiliated Analyst Recommendations?," Journal of Business Ethics, Springer, vol. 146(3), pages 485-503, December.
    2. Gerritsen, Dirk F. & Weitzel, Utz, 2017. "Security analyst target prices as reference point and takeover completion," Journal of Behavioral and Experimental Finance, Elsevier, vol. 15(C), pages 1-14.
    3. Hou, Jianlei & Zhao, Shangmei & Yang, Haijun, 2018. "Security analysts’ earnings forecasting performance based on information transmission network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 611-619.
    4. Marcet, Francisco, 2017. "Analyst coverage network and stock return comovement in emerging markets," Emerging Markets Review, Elsevier, vol. 32(C), pages 1-27.
    5. Dutta, Anupam & Knif, Johan & Kolari, James W. & Pynnonen, Seppo, 2018. "A robust and powerful test of abnormal stock returns in long-horizon event studies," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 1-24.
    6. Wafa Tariq Waqar, 2020. "Board size and acquisition outcome: The moderating role of home country formal institutional development," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(4), pages 529-541, June.

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    Keywords

    mergers; analysts; merger success; valuation;

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