Disagreement and the informativeness of stock returns: The case of acquisition announcements

LL Bargeron, K Lehn, SB Moeller, Frederik Schlingemann

Research output: Contribution to journalArticleAcademicpeer-review

16 Citations (Scopus)


We examine whether disagreement between managers and investors, in the context of mergers and acquisitions, affects the information contained in bidder returns. We test the disagreement hypothesis, which posits that disagreement causes investors to be less certain about their revaluation of acquiring firms, making bidder returns less informative. Consistent with this hypothesis, we find an inverse relation between bidder returns, which proxy for the degree of disagreement, and the change in the bidders' implied volatility. Also consistent with the hypothesis, we find that the significant inverse relation between bidder returns and the change in implied volatility holds only for cases of negative bidder returns. We test for alternative explanations of this relation, but continue to find robust support for the disagreement hypothesis. Finally, the relation between bidder returns and the likelihood of deal completion is stronger when announcement returns are more informative, suggesting managers ¿listen to the market¿ more when the market response is more informative.
Original languageEnglish
Pages (from-to)155-172
Number of pages18
JournalJournal of Corporate Finance
Publication statusPublished - 2014

Research programs

  • RSM F&A


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