IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v46y2025i6p3352-3374.html

Decision‐Making in M&A Under Market Mispricing: The Role of Deep Learning Models

Author

Listed:
  • Yuxuan Tang

Abstract

In the ever‐evolving landscape of financial markets, mergers and acquisitions (M&A) play a pivotal role in shaping the corporate ecosystem. However, the presence of market mispricing, driven by various factors such as information asymmetry, behavioral biases, and external shocks, has been a persistent challenge for investors and corporations alike. Understanding the intricate relationship between stock market mispricing and the M&A landscape is crucial for making informed investment decisions and fostering a resilient financial environment. This research explores how stock market mispricing impacts M&A within a fragmented market setting, utilizing deep learning methods to uncover complex patterns and relationships. By analyzing market inefficiencies, the study aims to provide a deeper understanding of how mispricing influences M&A strategies and outcomes. Employing a quantitative descriptive research design, the study gathered valid data through distributed questionnaires, yielding responses from 130 investors and traders, 115 market participants, and 99 regulators and policymakers. The analysis was conducted using the Statistical Package for the Social Sciences (SPSS). Firstly, it establishes the effectiveness of deep learning algorithms in detecting and quantifying stock market mispricing, providing a reliable measure of its extent. The study then explores the differential performance outcomes of companies engaging in M&A during periods of prevalent mispricing compared to those during efficient pricing. The study's novel contribution lies in the introduction of the role of sentiment analysis in deep learning models to incorporate market participants' sentiments, enhancing the accuracy of mispricing detection and its impact on M&A activity. Finally, this research contributes valuable insights into the integration of deep learning techniques in understanding and leveraging stock market mispricing for strategic decision‐making in the context of M&A.

Suggested Citation

  • Yuxuan Tang, 2025. "Decision‐Making in M&A Under Market Mispricing: The Role of Deep Learning Models," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(6), pages 3352-3374, September.
    • Handle: RePEc:wly:mgtdec:v:46:y:2025:i:6:p:3352-3374
    DOI: 10.1002/mde.4533
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.4533
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.4533?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Adrian Millea, 2021. "Deep Reinforcement Learning for Trading—A Critical Survey," Data, MDPI, vol. 6(11), pages 1-25, November.
    2. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, August.
    3. Moumita Barua & Teerath Kumar & Kislay Raj & Arunabha M. Roy, 2024. "Comparative Analysis of Deep Learning Models for Stock Price Prediction in the Indian Market," FinTech, MDPI, vol. 3(4), pages 1-18, November.
    4. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    5. Adra, Samer & Barbopoulos, Leonidas G., 2020. "Do corporations learn from mispricing? Evidence from takeovers and corporate performance," International Review of Financial Analysis, Elsevier, vol. 68(C).
    6. Wei, Baiyang & Sun, Ye, 2024. "The impact of mispricing and growth opportunities on mergers and acquisitions of public companies from the behavioral theory of the firm," Finance Research Letters, Elsevier, vol. 63(C).
    7. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    8. Lai, Shaojie & Pu, Xiaoling, 2020. "Mispricing or growth? an empirical analysis of acquisition premium," Finance Research Letters, Elsevier, vol. 37(C).
    9. Lingwei Li & Huai Zhang, 2021. "The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 692-717, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Campa, Jose M. & Hernando, Ignacio, 2002. "Value creation in European M&As," IESE Research Papers D/471, IESE Business School.
    2. Villalonga, Belen, 2000. "Does Diversification Cause the “Diversification Discount”?," University of California at Los Angeles, Anderson Graduate School of Management qt40v212gm, Anderson Graduate School of Management, UCLA.
    3. Feito-Ruiz, Isabel & Renneboog, Luc, 2017. "Takeovers and (excess) CEO compensation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 156-181.
    4. Esther Del Brio & Elida Maia-Ramires & Alberto De Miguel, 2011. "Ownership structure and diversification in a scenario of weak shareholder protection," Applied Economics, Taylor & Francis Journals, vol. 43(29), pages 4537-4547.
    5. Yan, Shan, 2015. "Managerial attitudes and takeover outcomes: Evidence from corporate filings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 30-44.
    6. Oesterle, Michael-Jörg & Richta, Hannah Noriko & Fisch, Jan Hendrik, 2013. "The influence of ownership structure on internationalization," International Business Review, Elsevier, vol. 22(1), pages 187-201.
    7. Jiraporn, Pornsit & Kim, Young Sang & Davidson III, Wallace N., 2008. "Multiple directorships and corporate diversification," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 418-435, June.
    8. Feito-Ruiz, Isabel & Menéndez-Requejo, Susana, 2011. "Cross-border Mergers and Acquisitions in different legal environments," International Review of Law and Economics, Elsevier, vol. 31(3), pages 169-187, September.
    9. Chen, Sheng-Syan & Chen, I-Ju, 2012. "Corporate governance and capital allocations of diversified firms," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 395-409.
    10. Timothy B. Folta & Jonathan P. O'Brien, 2008. "Determinants of firm-specific thresholds in acquisition decisions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(2-3), pages 209-225.
    11. Diaz, Belen Diaz & Olalla, Myriam Garcia & Azofra, Sergio Sanfilippo, 2004. "Bank acquisitions and performance: evidence from a panel of European credit entities," Journal of Economics and Business, Elsevier, vol. 56(5), pages 377-404.
    12. Isil Erel & Yeejin Jang & Michael S. Weisbach, 2015. "Do Acquisitions Relieve Target Firms’ Financial Constraints?," Journal of Finance, American Finance Association, vol. 70(1), pages 289-328, February.
    13. Cornett, Marcia Millon & Tanyeri, Basak & Tehranian, Hassan, 2011. "The effect of merger anticipation on bidder and target firm announcement period returns," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 595-611, June.
    14. Hong-Hai Ho & Thi-Hanh Vu & Ngoc-Tien Dao & Manh-Tung Ho & Quan-Hoang Vuong, 2019. "When the Poor Buy the Rich: New Evidence on Wealth Effects of Cross-Border Acquisitions," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    15. José Manuel Campa & Ignacio Hernando, 2004. "Shareholder Value Creation in European M&As," European Financial Management, European Financial Management Association, vol. 10(1), pages 47-81, March.
    16. Kerstin Fehre & Daniel Kronenwett & Hagen Lindstädt & Michael Wolff, 2016. "Lost in transaction? The transfer effect of strategic consistency," Business Research, Springer;German Academic Association for Business Research, vol. 9(1), pages 101-131, April.
    17. Wei, Baiyang & Sun, Ye, 2024. "The impact of mispricing and growth opportunities on mergers and acquisitions of public companies from the behavioral theory of the firm," Finance Research Letters, Elsevier, vol. 63(C).
    18. Erel, Isil & Jang, Yeejin & Weisbach, Michael S., 2012. "Financing-Motivated Acquisitions," Working Paper Series 2012-06, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    19. Campbell, Randall C. & Nagel, Gregory L., 2016. "Private information and limitations of Heckman's estimator in banking and corporate finance research," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 186-195.
    20. Mohammed-Khalil Ghali & Cecil Pang & Oscar Molina & Carlos Gershenson-Garcia & Daehan Won, 2025. "Forecasting Commodity Price Shocks Using Temporal and Semantic Fusion of Prices Signals and Agentic Generative AI Extracted Economic News," Papers 2508.06497, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:46:y:2025:i:6:p:3352-3374. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.