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The Causality between Analysts’ Recommendations and Corporate M&As

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  • Ching-Chih Wu
  • Tung-Hsiao Yang

Abstract

This study examines the role of analysts' recommendations in mergers and acquisitions (M&As), focusing on their impact on payment methods and acquirers' long-term performance. The findings reveal that acquirers with strong buy or buy recommendations are more likely to use 100% stock payment, consistent with the overvaluation hypothesis. Conversely, those with strong sell or sell recommendations tend to prefer cash payment. Notably, acquirers with higher recommendation scores exhibit better long-term market performance. This finding suggests that analysts' recommendations before M&A announcements do not fully incorporate the deal's potential impact on long-term value creation. Moreover, acquirers with buy recommendations experience significantly lower long-term returns, highlighting the disconnect between analysts' recommendations and long-term performance. These findings contribute to understanding the information content and limitations of analysts' recommendations in the M&A context. Â JEL classification numbers: G34, G24, G14.

Suggested Citation

  • Ching-Chih Wu & Tung-Hsiao Yang, 2024. "The Causality between Analysts’ Recommendations and Corporate M&As," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(3), pages 1-2.
    • Handle: RePEc:spt:apfiba:v:14:y:2024:i:3:f:14_3_2
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    References listed on IDEAS

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    More about this item

    Keywords

    Mergers and acquisitions; Analysts' recommendations; Payment methods; Information quality; Overvaluation hypothesis.;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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