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Do managers learn from the market? Firm level evidence in merger investment
Journal article   Peer reviewed

Do managers learn from the market? Firm level evidence in merger investment

Wenjing Ouyang and Samuel H. Szewczyk
Finance research letters, v 19, pp 139-145
Nov 2016
DOI: https://doi.org/10.1016/j.frl.2016.07.005

Abstract

Managers learn from the market Merger investments Merger-investment-to-q sensitivity Stock price firm-specific informativeness
• Stock price firm-specific information increases the sensitivity of merger investments to Tobin's Q.• This relation holds with diverse measures of stock price informativeness.• This relation holds when including other information and firm related variables.• Firms with more informative stock prices achieve better post-merger operating performance.• New evidence on manager learning from the market in making merger investments. Chen, Goldstein, and Jiang (2007) first present direct evidence that managers learn from the market in internal capital investment decisions. This paper extends the research to merger investment. We report that stock price firm-specific information increases the sensitivity of merger investment to Tobin's Q. This relation is not driven by a particular subsample and is robust to diverse measures of stock price informativeness. It also holds when we control for related variables. Firms with more informative stock prices achieve better post-merger operating performance. Overall, these results suggest that managers learn new information from financial markets in making merger investment decisions.

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8 citations in Web of Science
11 citations in Scopus

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Collaboration types
Domestic collaboration
Web of Science research areas
Business, Finance
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