Bidder earnings forecasts in mergers and acquisitions

Publication date: October 2019

Source: Journal of Corporate Finance, Volume 58

Author(s): Amir Amel-Zadeh, Geoff Meeks

Abstract

This study finds that pro-forma earnings forecasts by bidding firms during acquisitions are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium − but only in stock-financed acquisitions. Analysts also respond to these forecasts by revising their forecasts for the bidder upward. However, the benefits of forecast disclosure only accrue to bidders with a strong forecasting reputation prior to the acquisition. Explaining why not all bidders forecast, we document a higher likelihood of post-merger litigation and CEO turnover for bidders with a weak forecasting reputation and for those that underperform post-merger.

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https://www.sciencedirect.com/science/article/pii/S0929119918304425?dgcid=rss_sd_all

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