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The Effect of Corporate Merger Transactions on the Information Content of Earnings Announcements

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  • MARK A. TROMBLEY

Abstract

. This study develops and tests the proposition that corporate merger transactions give rise to changes in the association between firm accounting earnings and security returns. A model of the effect of merger transactions on stock price responses to information releases suggests that the earnings response coefficient of a postmerger entity is a weighted average of the earnings response coefficients of the combining firms, with the weights depending on relative earnings variability of the combining firms. Empirical results, based on a sample of 90 mergers completed over a 12†year period, are consistent with the model. Résumé. L'auteur élabore et vérifie une proposition selon laquelle les opérations de fusion donnent lieu à des changements dans la relation entre les bénéfices comptables de l'entreprise et le rendement de ses titres. Selon le modèle de l'incidence des opérations de fusion sur la réaction du cours des valeurs mobilières à la communication d'information, le coefficient de réaction des bénéfices d'une entité résultant d'une fusion est la moyenne pondérée des coefficients de réaction des bénéfices des entreprises qui fusionnent, les pondérations dépendant de la variabilité relative des bénéfices des entreprises constituantes. Les résultats empiriques, fondés sur un échantillon de 90 fusions s'échelonnant sur une période de plus de 12 ans, confirment la validité du modèle.

Suggested Citation

  • Mark A. Trombley, 1994. "The Effect of Corporate Merger Transactions on the Information Content of Earnings Announcements," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 483-503, March.
    • Handle: RePEc:wly:coacre:v:10:y:1994:i:2:p:483-503
    DOI: 10.1111/j.1911-3846.1994.tb00403.x
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