Strategic Announcement Sequencing: Earnings and M&A Announcements

Abstract

The authors examine whether acquiring companies strategically time their quarterly earnings and merger and acquisition announcements. Acquiring companies have the ability and incentive to alter the sequence of these 2 types of announcements to optimize the market’s perception of the firm. The authors show that acquiring companies are more likely to announce earnings before mergers and acquisitions if their earnings meet analyst expectations, especially if the acquiring company plans to use stock as a full or partial method of payment. Additionally, the authors find that companies that announce favorable earnings profiles create a more positive news environment and generate higher abnormal returns for their subsequently announced acquisitions.

Keywords:

• Earnings announcements
• Mergers and acquisitions
• Method of payment

Notes

1 10-Q forms may be submitted on any date before 40–45 days after the last day of the previous quarter, depending on the categories of the filers (https://www.sec.gov/answers/form10q.htm).

2 The 30-day window is an arbitrary window within which we believe that managers are able to manipulate the timing of the announcements and the 2 announcements are likely to have mutual impact. The 21-day window and the 28-day window are both tested and produce similar results. Results are available upon request.

3 The predictive regression is shown in Table OA.1 in the Online Appendix

4 A bulk of literature finds that investors’ attention is limited. Therefore, investors may react less (positive or negative) than they should to announced events during some specific dates (or even at a specific period in a trading day) because of a higher level of distractions: see Damodaran (1989), Gennotte and Trueman (1996), Pronk (2006); Peng and Xiong (2006), and DellaVigna and Pollet (2009). Given this well-known observation, companies may strategically announce certain types of corporate announcements on specific days with an expectation to have less negative or more positive announcement effects. To address this potential impact on CARs, we include date-specific variables in our analyses.