Do managers keep their word? The disclosure of merger intention at pre-merger issuance and M&A performance

Abstract

This paper investigates whether disclosing merger intention at the announcement of equity/debt issuance has an impact on subsequent M&A transactions. We find that companies tend to issue higher proceeds when they reveal their merger intentions, and, subsequently, they are more likely to complete the merger deal itself and pay a higher bid premium. However, we did not find a significant difference in merger performance between firms revealing merger intention and others. Our finding is consistent with the capital need theory.