Analyst Coverage and Acquisition Returns: Evidence from Natural Experiments

58 Pages Posted: 18 Apr 2017 Last revised: 31 Jul 2018

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Jennifer L. Juergens

Cornerstone Research, Inc.

Micah S. Officer

Loyola Marymount University - Department of Finance

Date Written: July 20, 2018

Abstract

Takeover targets covered by more equity analysts receive higher premiums while their acquirers earn lower merger announcement returns. We confirm these results using exogenous shocks to coverage as instruments for coverage loss. The analyses also show that covered targets experience a permanent market value appreciation in deals that are subsequently withdrawn. These findings indicate that analyst coverage of takeover targets materially affects shareholder wealth for both targets and acquirers. Our evidence indicates that analyst coverage creates value for shareholders of takeover targets through either a monitoring channel or a visibility improvement channel, but not through a reduction in information asymmetry.

Keywords: Acquisitions; Agency Costs; Analyst Coverage; Natural Experiments

JEL Classification: G24; G34; M40

Suggested Citation

Fich, Eliezer M. and Juergens, Jennifer L. and Officer, Micah S., Analyst Coverage and Acquisition Returns: Evidence from Natural Experiments (July 20, 2018). Available at SSRN: https://ssrn.com/abstract=2954222 or http://dx.doi.org/10.2139/ssrn.2954222

Eliezer M. Fich (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

HOME PAGE: http://https://sites.google.com/view/eliezerfich

Jennifer L. Juergens

Cornerstone Research, Inc.

2001 K Street NW
North Tower, Suite 800
Washington, DC 20006
United States

Micah S. Officer

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

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