Managerial Expectations and the Performance of Acquiring Firms: The Contribution of Soft Data

Abstract

This study examines whether the “soft” information present in merger and acquisition announcement press releases contains incrementally valuable news relative to traditional “hard” data and analyst generated information. We use Diction, a textual-analysis program, to construct measures of optimism and synergy expectations for more that 1,400 mergers and acquisition announcements over the period 1995 to 2007. We find that our measure of synergy expectations is inversely related to acquirer announcement period returns and continues to be negatively related to long-term performance up to two years post merger. We find that managerial optimism is not valued by the market and is especially discounted when analysts hold contrary views regarding the attractiveness of a merger. Overall, we conclude that the soft data contained in M&A announcements provides meaningful information to investors.