How do investors respond to targets' interim earnings?

dc.contributor.author Gunn, Rita
dc.contributor.author Pierce, Spencer
dc.contributor.author Romney, Miles
dc.date.accessioned 2021-11-12T18:48:42Z
dc.date.available 2021-11-12T18:48:42Z
dc.date.issued 2021
dc.description.abstract Fundamental to the accounting literature is that firms’ stock prices relate positively to their earnings news. We examine a setting where investors may be unsure to which firm the announced earnings accrue: earnings announced by acquisition targets between the announcement and completion of the acquisition. We find that targets’ stock prices relate positively to their unexpected earnings during this interim period, but only for unsuccessful deals. For completed deals, we fail to find evidence that the target’s or acquirer’s stock prices respond to the target’s unexpected interim earnings at the time of announcement. However, we find that targets’ interim earnings predict future abnormal returns of the combined firm following deal completion. These returns are economically significant as a trading strategy based on targets’ interim earnings produces annualized abnormal returns of 8.3%. Our findings suggest that investors respond inefficiently to the earnings that targets announce between announcement and completion of acquisitions.
dc.identifier.uri http://hdl.handle.net/10125/76992
dc.subject Earnings
dc.subject Mergers and Acquisitions
dc.subject Investor Inattention
dc.subject Investor Inefficiency
dc.title How do investors respond to targets' interim earnings?
dc.type.dcmi Text
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