Login | Register

Rumor rationales: The impact of message justification on article credibility

Title:

Rumor rationales: The impact of message justification on article credibility

Betton, Sandra, Davis, Frederick and Walker, Thomas (2018) Rumor rationales: The impact of message justification on article credibility. International Review of Financial Analysis . ISSN 10575219 (In Press)

[img]
Text (In Press, Accepted Manusc) (application/pdf)
Davis-IRFA-2018.pdf - Accepted Version
Restricted to Repository staff only until 29 March 2020.
Available under License Spectrum Terms of Access.
836kB

Official URL: http://dx.doi.org/10.1016/j.irfa.2018.03.013

Abstract

We perform content analysis on a unique sample of 2074 first-instance published takeover rumors to study how the rationale underlying a publication relates to its credibility and its association with firm returns and rumor accuracy. While most takeover rumors are inaccurate, we find that distinguishing between various justifications of potential takeover activity as provided within the published article serves to predict takeover announcements, subsequent firm abnormal returns, and – to a lesser extent – premiums. In addition, we note a clear distinction in results based upon the informative versus speculative nature of the rumor. We interpret this evidence as supportive of our hypothesis that the underlying rationale justifying the release of public information affects firm share prices and aids in predictability.

Divisions:Concordia University > John Molson School of Business > Finance
Item Type:Article
Refereed:Yes
Authors:Betton, Sandra and Davis, Frederick and Walker, Thomas
Journal or Publication:International Review of Financial Analysis
Date:28 March 2018
Funders:
  • Fonds Quebecois de la Recherche sur la Societe et la Culture (2015-NP-182891),
  • Social Sciences and Humanities Research Council of Canada (430-2013-0502),
  • Concordia University (seed funding program)
Digital Object Identifier (DOI):10.1016/j.irfa.2018.03.013
Keywords:Mergers and acquisitions; Takeover rumors; Trading strategies; Financial content analysis; Market anticipation; Takeover predictability
ID Code:983647
Deposited By: MONIQUE LANE
Deposited On:29 Mar 2018 19:33
Last Modified:29 Mar 2018 19:33

References:

A. Agrawal, T. Nasser Insider trading in takeover targets Journal of Corporate Finance, 18 (2005), pp. 598–625

K.R. Ahern, D. Sosyura Rumor has it: Sensationalism in financial media Review of Financial Studies, 28 (2015), pp. 2050–2093

N. Aktas, E. de Bodt, R. Roll Negotiations under the threat of an auction Journal of Financial Economics, 98 (2010), pp. 241–255

E.I. Altman Financial ratios, discriminant analysis and the prediction of corporate bankruptcy Journal of Finance, 23 (1968), pp. 589–609

B. Ambrose, W.L. Megginson The role of asset structure, ownership structure, and takeover defenses in determining acquisition likelihood Journal of Financial and Quantitative Analysis, 27 (1992), pp. 575–589

G. Andrade, M. Mitchell, E. Stafford New evidence and perspectives on mergers Journal of Economic Perspectives, 15 (2001), pp. 103–120

P. Asquith, R.F. Bruner, D.W. Mullins Jr. The gains to bidding firms from merger Journal of Financial Economics, 11 (1983), pp. 121–139

N. Barberis, A. Shleifer, R. Vishny A model of investor sentiment Journal of Financial Economics, 49 (1998), pp. 307–343

B.G. Barnes, N.L. Harp, D. Oler Evaluating the SDC mergers and acquisitions database The Financial Review, 49 (2014), pp. 793–821

B. Berelson Content analysis in communication research The Free Press, New York (1952)

S. Betton, B.E. Eckbo, R. Thompson, K.S. Thorburn Merger negotiations with stock market feedback Journal of Finance, 69 (2014), pp. 1705–1745

S. Betton, B.E. Eckbo, K.S. Thorburn Corporate takeovers in: B.E. Eckbo (Ed.), Handbook of corporate finance: Empirical corporate finance, Handbooks in finance series, Vol. 2, Elsevier, North-Holland, Amsterdam (2008), pp. 291–430

S. Betton, B.E. Eckbo, K.S. Thorburn Merger negotiations and the toehold puzzle Journal of Financial Economics, 91 (2009), pp. 158–178

S. Bhagat, M. Dong, D. Hirshleifer, R. Noah Do tender offers create value? New methods and evidence Journal of Financial Economics, 76 (2005), pp. 3–60

A. Bharadwaj, A. Shivdasani Valuation effects of bank financing in acquisitions Journal of Financial Economics, 67 (2003), pp. 113–148

M. Bradley, A. Desai, E.H. Kim Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms Journal of Financial Economics, 21 (1988), pp. 3–40

J. Cai, M.H. Song, R.A. WalklingAnticipation, acquisitions, and bidder returns: Industry shocks and the transfer of information across rivalsReview of Financial Studies, 24 (2011), pp. 2242–2285

J.Y. Campbell, A.W. Lo, A.C. MacKinlayThe econometrics of financial markets Princeton University Press, Princeton, New Jersey (1997)

W.S. Chan Stock price reaction to news and no-news: Drift and reversal after headlines Journal of Financial Economics, 70 (2003), pp. 223–260

H. Chen, P. De, Y. Hu, B.-H. Hwang Wisdom of crowds: The value of stock opinions transmitted through social media Review of Financial Studies, 27 (2014), pp. 1367–1403

H. Chou, G.Y. Tian, X. Yin Takeover rumors: Returns and pricing of rumored targets International Review of Financial Analysis, 41 (2015), pp. 13–27

M.M. Cornett, B. Tanyeri, H. Tehranian The effect of merger anticipation on bidder and target firm announcement period returns Journal of Corporate Finance, 17 (2011), pp. 595–611

K. Daniel, D. Hirshleifer, A. Subrahmanyam Investor psychology and security market under- and overreactions Journal of Finance, 53 (1998), pp. 1839–1885

F. Davis, T. Walker, T. Zhou M&A deal initiation: The case of the unwelcome suitor International Journal of Managerial Finance (2017) (Forthcoming)

T. Dimopoulos, S. Sacchetto Preemptive bidding, target resistance, and takeover premiums Journal of Financial Economics, 114 (2014), pp. 444–470

C. Dougal, J. Engelberg, D. Garcia, C. Parsons Journalists and the stock market Review of Financial Studies, 25 (2012), pp. 639–679
B.E. Eckbo Mergers and the value of antitrust deterrence Journal of Finance, 47 (1992), pp. 1005–1029

J.E. Engelberg, C.A. Parsons The causal impact of media in financial markets Journal of Finance, 66 (2011), pp. 67–97

M. Faccio, R.W. Masulis The choice of payment method in European mergers and acquisitions Journal of Finance, 60 (2005), pp. 1345–1388

L. Fang, J. Peress Media coverage and the cross-section of stock returns Journal of Finance, 64 (2009), pp. 2023–2052

K. Fuller, J. Netter, M. Stegemoller What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions Journal of Finance, 57 (2002), pp. 1763–1793

Y. Gao, D. Oler Rumors and pre-announcement trading: Why sell target stocks before acquisition announcements? Review of Quantitative Finance and Accounting, 39 (2012), pp. 485–508

P. Gompers, J. Ishii, A. Metrick Corporate governance and equity prices The Quarterly Journal of Economics, 118 (2003), pp. 107–156
M. Gort An economic disturbance theory of mergers The Quarterly Journal of Economics, 83 (1969), pp. 624–642

J.M. Griffin, N.H. Hirschey, P.J. Kelly How important is the financial media in global markets? Review of Financial Studies, 24 (2011), pp. 3941–3995

U.G. Guran, A.W. Butler Don't believe the hype: Local media slant, local advertising, and firm value Journal of Finance, 67 (2012), pp. 561–597

R. Hansen A theory for the exchange medium in mergers and acquisitions Journal of Business, 60 (1987), pp. 75– 95

J. Harford Corporate cash reserves and acquisitions Journal of Finance, 54 (1999), pp. 1969–1997

J. Harford, S.A. Mansi, W.F. Maxwell Corporate governance and firm cash holdings in the US Journal of Financial Economics, 87 (2008), pp. 535–555

R. Hoitash, M. Krishnan Herding, momentum and investor over-reaction Review of Quantitative Finance and Accounting, 30 (2008), pp. 25–47

T.J. Holmes, J.A. Schmitz Jr. On the turnover of business firms and business managers Journal of Political Economy, 103 (1995), pp. 1005–1038

H. Hong, J.C. Stein A unified theory of underreaction, momentum trading, and overreaction in asset markets Journal of Finance, 54 (1999), pp. 2143–2184

A. Ismail Which acquirers gain more, single or multiple? Recent evidence from the USA market Global Finance Journal, 19 (2008), pp. 72–84

N. Jegadeesh, D. Wu Word power: A new approach for content analysis Journal of Financial Economics, 110 (2013), pp. 712–729

D. Jenter, K. Lewellen CEO preferences and acquisitions Journal of Finance, 70 (2015), pp. 2813–2852

W. Jia, G. Redigolo, S. Shu, J. Zhao Crowd wisdom or rumor mill? The dual role of social media (2017) (Boston College working paper)

M. Kosfeld Rumours and markets Journal of Mathematical Economics, 41 (2005), pp. 646–664

J.M. Liberti, M.A. Petersen Information: Hard and soft (2017) (Northwestern University Working Paper)

C. Loderer, K. Martin Corporate acquisitions by listed firms: The experience of a comprehensive sample Financial Management, 19 (1990), pp. 17–33

T. Loughran, B. McDonald When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks Journal of Finance, 66 (2011), pp. 35–65

Y. Luo Do insiders learn from outsiders? Evidence from mergers and acquisitions Journal of Finance, 60 (2005), pp. 1951–1978

M. Ma, F. Zhang Investor reaction to merger and acquisition rumors (2016) (University of Utah Working Paper)

V. Maksimovic, G. Phillips The market for corporate assets: Who engages in mergers and asset sales and are there efficiency gains? Journal of Finance, 56 (2001), pp. 2019–2065

P. Malatesta, R. Thompson Partially anticipated events: A model of stock price reactions with an application to corporate acquisitions Journal of Financial Economics, 14 (1985), pp. 237–250

R.W. Masulis, S.A. Simsir Deal initiation in mergers and acquisitions Journal of Financial and Quantitative Analysis (2017) (Forthcoming)

M. Mitchell, T. Pulvino, E. Stafford Price pressure around mergers Journal of Finance, 59 (2004), pp. 31–63

M.L. Mitchell, J.H. Mulherin The impact of industry shocks on takeover and restructuring activity Journal of Financial Economics, 41 (1996), pp. 193–229

S.B. Moeller, F.P. Schlingemann, R.M. Stulz Firm size and the gains from acquisitions Journal of Financial Economics, 73 (2004), pp. 201–228

H. Mulherin, S.A. Simsir Measuring deal premiums in takeovers Financial Management, 44 (2015), pp. 1–14

M.S. Officer Termination fees in mergers and acquisitions Journal of Financial Economics, 69 (2003), pp. 431–467

K.G. Palepu Predicting takeover targets: A methodological and empirical analysis Journal of Accounting and Economics, 8 (1986), pp. 3–35

J. Peress The media and the diffusion of information in financial markets: Evidence from newspaper strikes Journal of Finance, 69 (2014), pp. 2007–2043

J. Pound, R. Zeckhauser Clearly heard on the street: The effect of takeover rumors on stock prices Journal of Business, 63 (1990), pp. 291–308

A. Purnanandam, N. Seyhun Do short-sellers trade on private information or false information? Journal of Financial and Quantitative Analysis (2017) (Forthcoming)

M. Rhodes-Kropf, D. Robinson, S. Viswanathan Valuation waves and merger activity: The empirical evidence Journal of Financial Economics, 77 (2005), pp. 561–603

M. Rhodes-Kropf, S. Viswanathan Market valuation and merger waves Journal of Finance, 59 (2004), pp. 2685–2718

P. Ryan, R.J. Taffler Are economically significant stock returns and trading volumes driven by firm-specific news releases? Journal of Business Finance & Accounting, 31 (2004), pp. 49–82

K. Schipper, R. Thompson Evidence on the capitalized value of merger activity for acquiring firms Journal of Financial Economics, 11 (1983), pp. 85–119

G. Schwert Markup pricing in mergers and acquisitions Journal of Financial Economics, 41 (1996), pp. 153–192

R. Shiller Irrational exuberance (2nd edition)Princeton University Press, Princeton, New Jersey (2005)

A. Shleifer, R. Vishny The limits of arbitrage Journal of Finance, 52 (1997), pp. 35–55

M.H. Song, R.A. Walkling Abnormal returns to rivals of acquisition targets: A test of the ‘acquisition probability hypothesis’ Journal of Financial Economics, 55 (2000), pp. 143–171

M.H. Song, R.A. Walkling Anticipation, acquisitions, and bidder returns: Industry shocks and the transfer of information across rivals Review of Financial Studies, 24 (2011), pp. 2242–2285

P.C. Tetlock Giving content to investor sentiment: The role of media in the stock market Journal of Finance, 62 (2007), pp. 1139–1168

P.C. Tetlock Does public financial news resolve asymmetric information? Review of Financial Studies, 23 (2010), pp. 3520–3557

P.C. Tetlock All the news that's fit to reprint: Do investors react to stale information? Review of Financial Studies, 24 (2011), pp. 1481–1512

P.C. Tetlock, M. Saar-Tsechansky, S. Macskassy More than words: Quantifying language to measure firms' fundamentals Journal of Finance, 63 (2008), pp. 1437–1467

T.L. Zivney, W.J. Bertin, K.M. Torabzadeh Overreaction to takeover speculation The Quarterly Review of Economics and Finance, 36 (1996), pp. 89–115
All items in Spectrum are protected by copyright, with all rights reserved. The use of items is governed by Spectrum's terms of access.

Repository Staff Only: item control page

Downloads per month over past year

Back to top Back to top