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Stock Price Movements around Acquisition Announcements and Management's Response

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  • Jennings, Robert H
  • Mazzeo, Michael A

Abstract

Whether management employs security price changes as information depends on its assessment of the accuracy of the information set held by the market participants. Managers may possess proprietary data providing them with a statistically dominant private data set. Alternatively, the rational expectations literature suggests that agents combine private information with the information aggregated by security prices when making decisions. In this article, the authors report the results of an empirical investigation designed to determine if managers' actions subsequent to an acquisition announcement are consistent with their learning from stock price changes. The data generally do not support such a hypothesis. Copyright 1991 by University of Chicago Press.

Suggested Citation

  • Jennings, Robert H & Mazzeo, Michael A, 1991. "Stock Price Movements around Acquisition Announcements and Management's Response," The Journal of Business, University of Chicago Press, vol. 64(2), pages 139-163, April.
    • Handle: RePEc:ucp:jnlbus:v:64:y:1991:i:2:p:139-63
    DOI: 10.1086/296531
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    Cited by:

    1. Anna Faelten & Miles Gietzmann & Valeriya Vitkova, 2014. "Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance – and How Informed Institutional Investors can Mitigate This Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(3-4), pages 469-506, April.
    2. Liu, Baixiao & McConnell, John J., 2013. "The role of the media in corporate governance: Do the media influence managers' capital allocation decisions?," Journal of Financial Economics, Elsevier, vol. 110(1), pages 1-17.
    3. Slovin, Myron B. & Sushka, Marie E., 1998. "The economics of parent-subsidiary mergers:: an empirical analysis," Journal of Financial Economics, Elsevier, vol. 49(2), pages 255-279, August.
    4. Inga Chira & Luis García-Feijóo & Jeff Madura, 2017. "When do managers listen to the market? Impact of learning in acquisitions of private firms," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 515-543, August.
    5. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc.
    6. Pierre-Xavier Meschi & Emmanuel Metais, 2002. "Investissements français aux États-Unis, stratégies de croissance externe et réactions du marché boursier," Revue Finance Contrôle Stratégie, revues.org, vol. 5(1), pages 129-165, March.
    7. Jacobsen, Stacey, 2014. "The death of the deal: Are withdrawn acquisition deals informative of CEO quality?," Journal of Financial Economics, Elsevier, vol. 114(1), pages 54-83.
    8. Baixiao Liu & John J. McConnell & Andrew Schrowang, 2023. "The Effect of Short-Sale Restrictions on Corporate Managers," JRFM, MDPI, vol. 16(11), pages 1-23, November.
    9. Weiwei Gao & Jiarui Yang & Zhen Huang, 2022. "Does feedback effect exist in firms' investment decisions? From the perspective of equity liquidity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2225-2236, September.
    10. Loderer, Claudio & Martin, Kenneth, 1997. "Executive stock ownership and performance Tracking faint traces," Journal of Financial Economics, Elsevier, vol. 45(2), pages 223-255, August.
    11. van Bommel, Jos & Vermaelen, Theo, 2003. "Post-IPO capital expenditures and market feedback," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 275-305, February.
    12. Adra, Samer & Hamadi, Malika & Yuan, Jiayi, 2023. "Top-tier advisors and the market feedback dynamics in cross-border M&As," International Review of Financial Analysis, Elsevier, vol. 86(C).
    13. Shaojie Lai & Xiaoling Pu & Qing (Sophie) Wang & Jianing Zhang, 2023. "Reference prices and withdrawn acquisitions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4365-4384, October.
    14. Anna Faelten & Miles Gietzmann & Valeriya Vitkova, 2015. "Learning from your investors: can the geographical composition of institutional investors affect the chance of success in international M&A deals?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 47-69, February.
    15. Meschi, Pierre-Xavier & Metais, Emmanuel, 2006. "International acquisition performance and experience: A resource-based view. Evidence from French acquisitions in the United States (1988-2004)," Journal of International Management, Elsevier, vol. 12(4), pages 430-448, December.
    16. Chang, Millicent & Yu, Jing & Adamson, William, 2018. "How directors trade and learn during takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 184-197.
    17. Hopkins, H. Donald & Chaganti, Raj & Kotabe, Masaaki & Co-editors, 1999. "Cross-border mergers and acquisitions: Global and regional perspectives," Journal of International Management, Elsevier, vol. 5(3), pages 207-239.
    18. Furfine, Craig H. & Rosen, Richard J., 2011. "Mergers increase default risk," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 832-849, September.
    19. Abdallah, Abed AL-Nasser & Abdallah, Wissam, 2019. "Does cross-listing in the US improve investment efficiency? Evidence from UK firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 215-231.
    20. Chikh, Sabrina & Filbien, Jean-Yves, 2011. "Acquisitions and CEO power: Evidence from French networks," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1221-1236.

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