AAA Spark Meeting of the Regions

Are Merger Proxy Filings Informative?

• In Event: DSFI/NE - Session 1

Abstract

This study examines the informativeness of merger proxy filings as a distinct information source
about mergers and whether two fundamental disclosure determinants, proprietary costs and
litigation risk, attenuate the informativeness of merger proxy filings. We find that merger proxy
filings are not significant information events with respect to investors’ expectations about the
impact of the acquisition on the acquirer firm's value. However, merger proxy filings are
significant information events with respect to decreasing uncertainty about acquirer firm value as
reflected in the bid-ask spread. We find evidence that an exogenous shock that increased
litigation appraisal risk caused merging firms to decrease the level and specificity of disclosure.
In addition, an exogenous shock that increased proprietary costs caused merging firms to
decrease the level and specificity of disclosure. Furthermore, increased proprietary costs directly
caused merger proxy filings to be less informative to investors as reflected in proxy filing date
absolute abnormal returns and bid-ask spread. Overall, our findings suggest that the litigation
risk and proprietary costs decrease the informativeness of merger proxy filings.

Authors

• Todd Kravet, University of Connecticut

• Jingyu Xu, University of Connecticut