Do corporations learn from mispricing? Evidence from takeovers and corporate performance

Adra, S. and Barbopoulos, L. G. (2020) Do corporations learn from mispricing? Evidence from takeovers and corporate performance. International Review of Financial Analysis, 68, 101128. (doi: 10.1016/j.irfa.2017.08.006)

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Abstract

In this article we form the simple prediction that mispricing encourages traders to collect costly information that guides managerial decisions at corporate level. Our findings support this prediction based on evidence derived from both the US market for corporate control and the overall variation in aggregate corporate profits. The trading activity in response to the temporary mispricing of the merging companies provides useful information that leads to the design of high-synergy deals. Such synergies are reflected in an increase in the announcement period acquirer abnormal returns and are not reversed in the long-run. At the market-wide level, our results suggest that the growth in the overall stock trading volume in response to market mispricing is associated with high future corporate profit growth. Overall, after controlling for several economic and financial conditions, the temporary mispricing in a developed and generally efficient stock market stimulates informative trading, ultimately leading to value- and performance-enhancing corporate decisions.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Barbopoulos, Dr Leonidas
Authors: Adra, S., and Barbopoulos, L. G.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:International Review of Financial Analysis
Publisher:Elsevier
ISSN:1057-5219
ISSN (Online):1873-8079
Published Online:04 September 2017
Copyright Holders:Copyright © 2017 Elsevier Inc.
First Published:First published in International Review of Financial Analysis 68: 101128
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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