E.L. Black
Uncertainty Triggers Overreaction: Evidence from Corporate Takeovers
Black, E.L.; Guo, M.; Hu, N.; Vagenas-Nanos, E.
Abstract
Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to it. We test this theoretical prediction in an M&A framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, acquiring firms generate highly positive and significant gains following the announcement of private stock and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty, when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition. Overall, we provide empirical evidence that shows that information uncertainty plays a significant role in explaining short-run acquirer abnormal returns.
Citation
Black, E., Guo, M., Hu, N., & Vagenas-Nanos, E. (2017). Uncertainty Triggers Overreaction: Evidence from Corporate Takeovers. European Journal of Finance, 23(14), 1362-1389. https://doi.org/10.1080/1351847x.2016.1202296
Journal Article Type | Article |
---|---|
Acceptance Date | Jun 8, 2016 |
Online Publication Date | Jul 4, 2016 |
Publication Date | Nov 14, 2017 |
Deposit Date | Jun 22, 2016 |
Publicly Available Date | Jan 4, 2018 |
Journal | European Journal of Finance |
Print ISSN | 1351-847X |
Electronic ISSN | 1466-4364 |
Publisher | Taylor and Francis Group |
Peer Reviewed | Peer Reviewed |
Volume | 23 |
Issue | 14 |
Pages | 1362-1389 |
DOI | https://doi.org/10.1080/1351847x.2016.1202296 |
Public URL | https://durham-repository.worktribe.com/output/1401880 |
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Copyright Statement
This is an Accepted Manuscript of an article published by Taylor & Francis Group in The European Journal of Finance on 04/07/2016, available online at: http://www.tandfonline.com/10.1080/1351847X.2016.1202296.
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