Do Firms Strategically Internalize Disclosure Spillovers? Evidence from Cash‐Financed M&As

Journal of Accounting Research, Volume 58, Issue 2

Stanford University Graduate School of Business Research Paper

Posted: 15 Mar 2021

See all articles by Jinhwan Kim

Jinhwan Kim

Stanford Graduate School of Business

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Benjamin Yost

Boston College - Carroll School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2020

Abstract

We investigate whether managers internalize the spillover effects of their disclosure on the stock price of related firms and strategically alter their disclosure decisions when doing so is beneficial. Using data on firm‐initiated disclosures during all‐cash acquisitions, we find evidence consistent with acquirers strategically generating news that they expect will depress the target's stock price. Our results suggest the disclosure strategy leads to lower target returns during the negotiation period when the takeover price is being determined and results in a lower target premium. These findings are robust to a battery of specifications and falsification tests. Our results are consistent with expected spillovers influencing the timing and content of firms’ disclosures in M&A transactions.

Keywords: corporate disclosures; internalizing externalities; mergers and acquisitions

JEL Classification: D62, D83, G34, M41

Suggested Citation

Kim, Jinhwan and Verdi, Rodrigo S. and Yost, Benjamin, Do Firms Strategically Internalize Disclosure Spillovers? Evidence from Cash‐Financed M&As (December 1, 2020). Journal of Accounting Research, Volume 58, Issue 2, Stanford University Graduate School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=3803507

Jinhwan Kim

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

Benjamin Yost

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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