The Benefits and Costs of Managerial Earnings Forecasts in Mergers and Acquisitions

• In Event: Reporting Quality and Corporate Finance

Abstract

In this study we provide evidence on the benefits and costs of voluntary earnings forecasts by bidding firms during acquisitions, shedding light on the motives and capital market consequences of these voluntary disclosures. Specifically, we find a higher propensity of forecast disclosure when the acquisition is made with stock and acquisition synergies difficult to assess by investors. We document that merger forecasts attenuate the generally negative investor reaction to acquisition announcements. Furthermore, these forecasts are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium. Explaining why not all bidders forecast, we provide evidence on a higher likelihood of post-merger litigation alleging bidders’ misleading statements. This is the first study that examines forecasting in an acquisition context.

Authors

• Amir Amel-Zadeh, University of Cambridge

• Baruch Lev, New York University

• Geoff Meeks, University of Cambridge, Judge Business School