Manager sentiment, deal characteristics, and takeover performance

Abstract

Various studies analyze the driving forces behind takeover activities, including investor sentiment, liquidity, and fundamental shocks. In this study, we examine how manager sentiment influences takeover characteristics and long-term performance using textual analysis of data in 10-K and 10-Q filings. Our findings identify that manager sentiment has strong positive predictive power for takeover activities, and high (positive) manager sentiment decreases the long-term performance of takeover deals. Moreover, we show that high-sentiment managers tend to undertake large deals, decrease all-stock transactions, acquire hard-to-value targets, and provide high target valuations, suggesting over-investment for underperforming high-sentiment deals.