Do M&A Delistings Impact U.S. Capital Markets? Evidence of Negative Information Externalities for Industry Peer Firms

Abstract

This study examines whether M&A delistings are associated with a deterioration in the quality of analysts’ information environment for industry peer firms. Delisted firms cease to trade and provide stand-alone financial reports, depriving analysts of potentially useful industry-level information for analyzing industry peer firms. We document that M&A delistings are associated with increases in absolute forecast errors and dispersion for industry peer firms that persist for at least six quarters. This effect is larger when the delisted firm is relatively more important to its industry. Additional analyses – including analyses of M&As involving private target firms, non-completed M&As, and an analyst-level comparison of analysts who follow versus those who do not follow delisted firms – suggest that our results (1) reflect a loss of useful information to analysts, and (2) are robust to endogeneity bias from correlated omitted industry shocks. Our results provide evidence of broader industry-wide informational effects of M&A delistings.