The change in information uncertainty and acquirer wealth losses

Common auditors and cross-country M&A transactions

“…This uncertainty is even greater in cross-country M&A transactions where uncertainties relating to the valuation of the target and the potential synergies arising from the transaction are compounded by differences in the cultural, legal and financial environments under which the two companies operate. Prior research indicates that such uncertainty negatively effects M&A quality, as evident from lower acquirer announcement returns and post-acquisition performance (McNichols and Stubben, 2015;Erickson et al, 2012). Moreover, Martin and Shalev (2016) find that more firm specific target information alleviates uncertainty and improves acquirer announcement returns and the expected value of the synergies arising from the M&A transaction.…”

The effects of anticipated future investments on firm value: evidence from mergers and acquisitions

“…Taken together, I find that investors place a discount on a firm's marginal value of cash for firms with histories of value-destroying acquisitions when the likelihood of future M&As is high, and this discount is mainly on the firm's excess cash that is unexpected given the firm's business model. Erickson et al (2012) find that for acquiring firms, analysts' forecast dispersion after acquisitions is negatively associated with post-acquisition returns. They interpret their findings as consistent with the idea that acquisitions increase investors' uncertainty about future earnings, which leads to a higher cost of capital and therefore lower market valuation.…”

“…Erickson et al (2012) find that post-acquisition stock returns are inversely associated with changes in analyst forecast dispersion, their proxy for information uncertainty. They interpret this finding as indicating that information uncertainty is at least a contributing factor to stock price underperformance, as higher information uncertainty leads to a higher discount rate (the denominator effect) for the firm's fundamentals (Wang (1993)).…”

“…I conduct my analysis using a subsample of firms followed by at least three analysts. As in Erickson et al (2012), I use analyst forecast dispersion as a proxy for information uncertainty. I estimate analyst forecast dispersion as a function of firm characteristics and Incidence as follows:…”

Information ambiguity and firm value

“…the standard deviation of all outstanding analyst forecasts scaled by the mean consensus forecast for each calendar month, following. Forecast dispersion is a widely accepted measure of information uncertainty, parameter risk, or estimation risk (Anderson et al, 2005(Anderson et al, , 2009Doukas et al, 2006;Dittmar and Thakor, 2007;Erickson et al, 2012;Güntay and Hackbarth, 2010;Johnson, 2004;Kumar et al, 2008).…”