The Intangibles Song in Takeover Announcements: Good Tempo, Hollow Tune

Abstract

Mergers and acquisitions are often motivated by the intention of creating value from intangible assets. We develop a novel word list of intangibles and apply it to takeover announcements. The value of these deals to the acquirer, as shown by abnormal announcement returns, is questionable: One standard deviation more in intangibles talk lowers returns by 0.50 percentage points. Agency problems explain little of these results. Rather, the cross-section of announcement returns, payment mode choices, and insider trades suggest that intangibles talk reflects managerial overoptimism. In sum, takeover announcements reveal important information regarding the quality of deals.

Keywords: Corporate announcements, intangible assets, intangibles talk, mergers and acquisitions, takeovers, textual analysis

JEL Classification: G14, G34, G41