The impact of communications and emotions on merger and acquisition success: Does anyone care how you feel about your deal?

Abstract

Most merger and acquisition (M&A) performance studies focus upon protagonist pre-deal characteristics, post-deal post-acquisition integration strategies, or a combination of the two. However, a critical part of the M&A process has been overlooked. The “deal completion” phase, between the announcement of a deal and its completion, can make the difference between success and failure. This paper examines this neglected process by focusing upon managerial practices aiming to influence investor sentiment during the deal completion phase. We contend that skillful use of acquirer voluntary communications can affect acquirer stock market price. This matters, as a higher price for acquirer stock generally improves an acquirer’s ability to purchase a target company and helps a deal to close successfully. We therefore investigate whether acquirers can influence their share price positively through the skillful use of voluntary communications, in terms of both the volume of communications and the sentiment expressed. We suggest that these voluntary communications can reduce information asymmetry between the acquirer and the financial markets, and so influence market prices. We examine 548 large M&A deals between US acquirers and US targets, completed during 2010–2016, and analyze more than 15,000 voluntary communications taking place between announcement and completion dates. Using stock volatility and cumulative abnormal returns, we find that acquirers benefit from more voluntary communications in the short term, particularly in all equity deals. We also find that the sentiment of voluntary communications matters, as those that express negative sentiment in the short term see a reduction in performance, while longer term those expressing positive sentiment see a positive relationship with stock volatility. These results show that managers can use voluntary communications to influence market perceptions of their acquisition strategies, and that sentiment matters.

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ORCID for Yun Luo: orcid.org/0000-0001-8409-366X

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