Cristin-resultat-ID: 1574707
Sist endret: 21. mars 2018, 15:42

Three essays on investor recognition and mergers & acquisitions

  • Di Cui



Handelshøyskolen BI
NVI-nivå 0


Series of Dissertations
ISSN 1502-2099

Om resultatet

Publiseringsår: 2015
Hefte: 6/2015
Antall sider: 89
ISBN: 978-82-8247-102-2


Fagfelt (NPI)

Fagfelt: Økonomisk-administrative fag
- Fagområde: Samfunnsvitenskap

Beskrivelse Beskrivelse


Three essays on investor recognition and mergers & acquisitions


This dissertation consists of three papers: “Investor Recognition and Post-Acquisition Performance of Acquirers”, “Acquirer Termination Fee and Stock Market Feedback” and “Investor Recognition and Idiosyncratic Volatility”. The rest part of this section presents a brief summary for each of the papers. The first paper of the dissertation provide an alternative explanation to the postacquisition under-performance. The literature has documented a negative relation between investor recognition and cross-sectional expected returns. This is consistent with the prediction in the incomplete information model of Merton (1987). Investor recognition is a concept in Merton (1987)s incomplete market model, and is defined as the fraction of investors who knows about the stock. Consistent with Mertons prediction, the literature has document a negative relation between investor recognition and expected returns. This paper investigates whether or not the changes in investor recognition of acquirers around the time of the acquisitions can explain the post-acquisition under-performance of acquirer stocks. Using a large sample of U.S. acquisitions from 1980 to 2010, this paper finds that investor recognition, proxied by the number of institutional investors and the number of common shareholders, increases significantly from before an acquisition to after an acquisition. Once the increases in investor recognition are controlled for, the “puzzling” long-run under-performances of acquirers disappear. The paper also show that the effect of the change in investor recognition on post-acquisition abnormal returns is not subsumed by extant alternative explanations. In the second paper, we examine the existence of stock market feedback effect empirically in the context ofMerger and Acquisition. Theory suggests that traders will be more reluctant to trade on negative private information about an ongoing merger if their trading will cause the merger to be canceled. This paper provide evidence on theexistence of such feedback between prices and corporate decisions. Using the acquirer termination fees as a proxy for the commitment not to cancel the transaction, we show that post announcement acquirer stock prices contain more firm specific information when such a commitment exists than when it does not. This suggests that investors with negative private information are more willing to trade on their information when managers are prevented from using this information to adjust their decisions. Finally the third paper of this dissertation studies the cross-sectional relation between investor recognition and idiosyncratic volatility. Using the number of institutional investors, the number of shareholders and the number of analysts as proxies for investor recognition, the paper show that investor recognition is positively associated with firm idiosyncratic volatility. To investigate the explanations to the positive relation between investor recognition and idiosyncratic volatility, we examine the changes in investor recognition and idiosyncratic volatility around the time of the S&P 500 index additions. We find that idiosyncratic volatility does not increase for firms added to the S&P 500 index, and the results suggest that investor recognition has no casual effect on idiosyncratic volatility.


Di Cui

  • Tilknyttet:
    ved Institutt for finans ved Handelshøyskolen BI

Øyvind Norli

  • Tilknyttet:
    ved Institutt for finans ved Handelshøyskolen BI
1 - 2 av 2