Investor sentiment and bidder announcement abnormal returns

Abstract

We introduce the significance of a direct sentiment proxy as an explanatory variable of bidder announcement returns. We argue that sentiment subconsciously influences investor perception of potential merger synergies and risks, and therefore relates to bidder abnormal returns. We proxy daily sentiment based on Facebook status updates across seventeen international markets and show that there is a positive relation between sentiment and bidder announcement returns. In line with behavioral literature stating that sentiment more heavily influences uninformed traders, this relation is more pronounced in acquisitions with a low percentage of blockholder ownership, acquisitions of US public targets, and acquisitions of large targets relative to the size of the bidders. Our study goes beyond the conventional sentiment and stock market returns literature, uncovering a significant relation between sentiment and firm-specific abnormal returns to acquiring companies.

Market valuation and acquiring firm performance in the short and long term: Out-of-sample evidence from Spain

“…In this sense, our evidence is consistent with some behavioural models that predict an underreaction pattern where long-term returns continuations are expected (Kadiyala and Rau, 2004; Croci et al, 2010). However, our findings are not coincident with Petmezas (2009), Porter and Singh (2010), Danbolt et al (2015), Zaremba and Grobelny (2017) and Chuang (2018) who find overreaction, that is, bidder reactions are consistent with the predictions of investor sentiment (optimism) generating short-run significantly large abnormal returns followed by long-term reversals during bullish markets.…”

“…In this sense, our evidence is consistent with some behavioural models that predict an underreaction pattern where long-term returns continuations are expected (Kadiyala and Rau, 2004;Croci et al, 2010). However, our findings are not coincident with Petmezas (2009), Porter and Singh (2010), Danbolt et al (2015), Zaremba and Grobelny (2017) and Chuang (2018) who find Table 3. Acquirer's short-and long-term abnormal performance by listing status of the target firm and market valuation.…”

“…1 Regarding the behaviour of managers related to acquisitions, Roll (1986) states that managers are influenced by their pride and overconfidence in making their acquisition decisions. Porter and Singh (2010) and Danbolt et al (2015) find that managers overestimate synergies and under-estimate the costs associated with the acquisition. This excessive optimism and overconfidence of managers will destroy the value of transactions in the future.…”

Management accounting goes digital: Will the move make it wiser?

“…This is the case, for instance, with analysis of large amounts of communication flows to understand the 'mood' of organizations. One example is the use of Facebook posts to explain investor behavior (Danbolt, Siganos and Vagenas-Nanos, 2015).…”

Individual Mean-Variance Relation and Stock-Level Investor Sentiment

“…Massa and Yadav (2015) further show that the investor sentiment affects the strategy and performance of mutual funds. Lately, finance studies also focus on the indirect effect of ISENT on stock markets (Ho, Hung 2009;Yu, Yuan 2011;Baker et al 2012;Stambaugh et al 2012;Danbolt et al 2015;Shen et al 2016). Kumar and Lee (2006) suggest that the systematic component of retail investors' stock trading can explain the return co-movements of stocks.…”