Investor Inattention to All-Cash Acquisition Announcements: A Joint Day-Time Analysis in the Spanish Market

Abstract

Prior studies suggest that investors have limited attention, which determines the speed with which information is incorporated into share prices and, in turn, affects the efficiency of the markets. Unlike other corporate events, the information contained in an acquisition announcement is generally less standard and more complicated to process. Therefore, investor inattention is less likely around this event. In this study we test the existence of investor inattention for a sample of all-cash acquisition announcements of listed and unlisted target firms released by listed Spanish firms from 1998 to 2018. Cash acquisitions allow us to control for the strategic behavior of overvalued companies engaged in stock-financed acquisitions. We perform a joint analysis of day of the week and time of trade from both a univariate and a multivariate perspective, after controlling for several factors that are related to the market reaction to acquisition announcements. Consistent with the notion that investors are less attentive to Friday announcements, we find a significant lower market reaction to acquisition announcements released during market trading hours both in terms of price and trading volume.

Board gender diversity and the acquisition announcement on Friday: evidence from Spain

“…Glasner (2000) suggested that investors pay more attention to the market on Mondays than on other days. Farinós et al. (2021) found that the acquirers' average abnormal return on acquisitions of private targets is positive and statistically significant any time of the day on all business days except on Fridays.…”

“…Thus, we examine the different market response to Friday and non-Friday all-cash acquisition announcements. In addition, as previous studies focussing on the Spanish market have confirmed the limited investor attention to the acquisition announcements of unlisted companies (Farin os et al, 2020(Farin os et al, , 2021, we differentiate between listed and unlisted companies. As we have pointed out above, we employ all-cash acquisitions because overwhelming prior evidence has shown that, on average, investors react positively and significantly to those involving privately owned targets (Martynova and Renneboog, 2011;Farin os et al, 2017Farin os et al, , 2020.…”

“…The reasoning is that investors might get distracted by the weekend plans and thus pay less attention to corporate news on Friday, which would result in a market under-reaction to the announcement. Previous literature has found evidence of the Friday effect on merger announcements (Louis and Sun, 2010;Adra and Barbopoulos, 2018;Siganos, 2019;Farin os et al, 2021). Specifically, Farin os et al (2021) were the first to find a significant lower market reaction to all-cash acquisition announcements of unlisted targets in terms of price and volume traded when the limited investor attention on Friday is considered.…”

“…The reasoning is that investors might get distracted by the weekend plans and thus pay less attention to corporate news on Friday, which would result in a market under-reaction to the announcement. Previous literature has found evidence of the Friday effect on merger announcements (Louis and Sun, 2010; Adra and Barbopoulos, 2018; Siganos, 2019; Farinós et al. , 2021).…”

“…, 2021). Specifically, Farinós et al. (2021) were the first to find a significant lower market reaction to all-cash acquisition announcements of unlisted targets in terms of price and volume traded when the limited investor attention on Friday is considered.…”