Do investors underreact to stock swap merger announcements that are made on Fridays and high-distraction days? Evidence of transactions made between U.S. firms from 1994 to 2014

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School of Business | Master's thesis
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2016

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Rahoituksen laitos
Department of Finance

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Rahoitus
Finance

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en

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86

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Abstract

The topic of limited investor attention and its effects on capital markets, has increasingly captured the focus of researchers in recent literature. According to the studies, observed market underreactions to various corporate announcements may be attributable to reduced levels of investor attention. In these models, investor attention is regarded as a cognitive limited resource, whereby the presence of external stimuli and conditions can lead to a situation where investors do not pay the optimal amount - or what standard models assume - attention to relevant information. In this thesis, I test for the effects of limited investor attention in the context of stock swap merger announcements, using the same measure of investor distraction as Hirshleifer, Lim, and Teoh (2009). More specifically, I test whether acquirers exhibit a muted short-term price and volume response to stock swap merger announcements of public and private targets, when there are larger amounts of same-day quarterly earnings announcement releases. Additionally, I test for the investor inattention hypothesis presented by Louis and Sun (2010), whether there is a muted short-term market reaction to stock swap mergers that are announced on Fridays. I find partial evidence for a muted price and volume response in regard to announcements of stock swap mergers that are made on both high-distraction days and Fridays. However, the results are not very robust and consistent across the whole sample and different categories of targets, to warrant strong support for the investor distraction and inattention effects, in the context of stock swap merger announcements.

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limited investor attention, investor inattention, investor distraction, stock swap, merger announcements, quarterly earnings announcements

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https://urn.fi/URN:NBN:fi:aalto-201609083693

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[gradu] Kauppakorkeakoulu / BIZ