Risks in Mergers and Acquisitions

77 Pages Posted: 19 Mar 2021 Last revised: 24 Jul 2021

See all articles by Feng Guo

Feng Guo

Iowa State University - Department of Accounting and Finance

Tingting Liu

Iowa State University

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Xinyan Yan

University of Dayton

Date Written: December 1, 2020

Abstract

Using acquirer’s risk-factor disclosure in merger filings, we study the risks faced by acquirers in mergers and acquisitions and how these risks are associated with important merger outcomes. We first establish the validity of acquirer’s risk factor disclosure, and then employ an unsupervised topic modeling approach to divide acquirer’s disclosures into specific risk topics. We find that acquirers emphasize four risks including technology and product, valuation and fairness, accounting information, and ownership and dilution. Our further analyses show that these disclosed risks have significant and diverging relations with acquirer’s post-merger outcomes such as post-merger integration problem and volatility and level of post-merger of operating and stock performance.

Keywords: Mergers and Acquisitions, Risk-factor disclosure, Risks in M&As, Technology and product, Valuation and fairness, Accounting information, Ownership and dilution, Merger outcomes

JEL Classification: G32, G34, G38

Suggested Citation

Guo, Feng and Liu, Tingting and Shu, Tao and Yan, Xinyan, Risks in Mergers and Acquisitions (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3746734 or http://dx.doi.org/10.2139/ssrn.3746734

Feng Guo

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Tao Shu (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

Xinyan Yan

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

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