Communicating strategic commitment during takeovers

Yakis-Douglas, Basak; Angwin, Duncan and Meadows, Maureen (2012). Communicating strategic commitment during takeovers. In: Academy of Management 2012 Annual Meeting: The Informal Economy, 3-7 Aug 2012, Boston, USA.

URL: http://meeting.aomonline.org/2012/

Abstract

Stock prices are influenced more by investor perceptions than fundamental values (Fombrun 1990, 1996). These perceptions may be influenced by ‘voluntary’ corporate communications, but it is not clear which elements of these communications have greater or lesser influence on share prices. This paper investigates the effect of voluntary communications at a time of strategic uncertainty – the post announcement phase in a proposed merger. Post announcement, the outcome of the M&A is not evident, and in this period of information asymmetry between protagonist companies and investors, corporate communications are likely to influence share prices. This effect may also be different in different regions of the world. Drawing upon two large M&A data sets for the USA and UK comprising of nearly 57,000 deals and nearly 30,000 voluntary external communications, this paper argues that signalling strategic commitment is important in shaping market response. Our results demonstrate that communication characteristics such as volume of communication, content-related factors such as sharing information regarding integration plans, a mix of qualitative and financial data, plans on how to establish synergies and undertake investment as well as employing high- reputation intermediaries plays an important role in determining share price reaction.

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