Stock Price Idiosyncratic Information And Merger Investment Decision

With the China financial market stride forward singing militant songs, corporate mergers and acquisitions activities are becoming increasingly active; Mergers&Acquisitions has become an important measure for Chinese enterprises’rapid development. When the enterprise managers make merger decision, how to obtain the related information from the stock market, whether this information is positive for management’s acquisition strategy? And what influence does Managers’quality have on the merger performance? These are the two issues this paper is concentrating to analysis.First of all, based on the previous research, this paper raises a concept, the Stock Price of Heterogeneous Information (SPII). Then what is the SPII? It is the information about the specific company’s fundamentals and potential development value the informed traders have, which impounded into stock price through informed trading. More and more researchers are becoming to realize that the changes of market risk lack predictive power for the return, however, the stock price heterogeneity fluctuation is able to predict the return, thus the risk of given stock price has significant effect on investors’ return. In this paper, learning from the previous analysis methods, we define stock price heterogeneity fluctuation as stock price Idiosyncratic Information(SPII), which impounded into stock price through informed trading. besides, we use the stock price’s non-synchronization to quantify the value of SPII.This paper focuses on1998major merger transactions announced during the period from2006to2010, through structuring regression model to examine whether SPII provides managers the new information about the value of growth opportunities and improves merger investment decisions, The results show that the acquirer SPII increases the sensitivity of merger investment to Tobin’s Q. Then, I investigate the relationship between SPII and the M&A performance, I use the following three indicators:acquirer announcement return, combined merger return and post-merger operating performance to measure the M&A’s performance. The results show that the acquirer SPII is positively associated with acquirer announcement return, combined merger return, long-run abnormal return, and post-merger operating performance.This paper further explores the mechanism behind this correlation, the sample is divided into several sub types of samples which were used to do regression analysis respectively. I find these relations are mainly driven by acquirers with high Q or block holder ownership. Overall, these results support our learning hypothesis. Further, management learning efficiency is positively related with firm growth opportunities, management quality, and corporate governance. This study provides important evidence that managers learn from the stock market in making merger investment decisions.