The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals
Shareholders’ approval rates on M&A deals are informative because they are predictive of the acquirer's post-merger operating performance. Since the passing of the deal is salient information while the specific approval rate is not, investors may misprice the detailed voting outcome due to...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2021
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| Online Access: | https://hdl.handle.net/10356/154550 |
| _version_ | 1824456595082313728 |
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| author | Li, Lingwei Zhang, Huai |
| author2 | Nanyang Business School |
| author_facet | Nanyang Business School Li, Lingwei Zhang, Huai |
| author_sort | Li, Lingwei |
| collection | NTU |
| description | Shareholders’ approval rates on M&A deals are informative because they are predictive of the acquirer's post-merger operating performance. Since the passing of the deal is salient information while the specific approval rate is not, investors may misprice the detailed voting outcome due to their limited attention. We find that post-merger abnormal stock returns are significantly higher for acquirers receiving higher approval rates: a one percentage point increase in the approval rate is associated with a 48 basis point increase in the market-adjusted stock return in the year after the merger is completed. Consistent with mispricing, the voting outcome reliably predicts post-merger earnings announcement returns and analyst forecast errors. What's more, the association between the voting outcome and post-merger stock returns is stronger when investors’ attention to the voting outcome is distracted by same-day earnings announcements, when the marginal investor is less likely to be sophisticated, and when investors have greater pre-merger disagreement. Short sale constraints do not seem to explain our findings. Overall, our results suggest that detailed proxy voting outcomes are neglected by investors. |
| first_indexed | 2025-02-19T03:56:36Z |
| format | Journal Article |
| id | ntu-10356/154550 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2025-02-19T03:56:36Z |
| publishDate | 2021 |
| record_format | dspace |
| spelling | ntu-10356/1545502023-05-19T07:31:18Z The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals Li, Lingwei Zhang, Huai Nanyang Business School Business::Finance Marketing Efficiency Mergers and Acquisitions Shareholders’ approval rates on M&A deals are informative because they are predictive of the acquirer's post-merger operating performance. Since the passing of the deal is salient information while the specific approval rate is not, investors may misprice the detailed voting outcome due to their limited attention. We find that post-merger abnormal stock returns are significantly higher for acquirers receiving higher approval rates: a one percentage point increase in the approval rate is associated with a 48 basis point increase in the market-adjusted stock return in the year after the merger is completed. Consistent with mispricing, the voting outcome reliably predicts post-merger earnings announcement returns and analyst forecast errors. What's more, the association between the voting outcome and post-merger stock returns is stronger when investors’ attention to the voting outcome is distracted by same-day earnings announcements, when the marginal investor is less likely to be sophisticated, and when investors have greater pre-merger disagreement. Short sale constraints do not seem to explain our findings. Overall, our results suggest that detailed proxy voting outcomes are neglected by investors. Ministry of Education (MOE) We acknowledge helpful comments from Jacob Thomas, Yair Listokin, Rui Shen and workshop participants at Nanyang Technological University, the 28th Australasian Finance and Banking Conference, the 2016 Midwest Finance Association Annual Meeting, the 2017 Asian Finance Association Annual Meeting and the 2017 Auckland Finance Meeting. We are also grateful to Ronan Powell (editor) and an anonymous referee for excellent comments and suggestions. Zhang acknowledges financial support from Singapore Ministry of Education Academic Research Fund Tier 1 (Reference Number: RG75/16). All errors are our own. 2021-12-28T04:13:48Z 2021-12-28T04:13:48Z 2021 Journal Article Li, L. & Zhang, H. (2021). The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals. Journal of Business Finance and Accounting, 48(3-4), 692-717. https://dx.doi.org/10.1111/jbfa.12486 0306-686X https://hdl.handle.net/10356/154550 10.1111/jbfa.12486 2-s2.0-85089312631 3-4 48 692 717 en RG75/16 Journal of Business Finance and Accounting ©2020 John Wiley & Sons Ltd. All rights reserved. |
| spellingShingle | Business::Finance Marketing Efficiency Mergers and Acquisitions Li, Lingwei Zhang, Huai The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title | The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title_full | The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title_fullStr | The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title_full_unstemmed | The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title_short | The devil is in the detail? Investors’ mispricing of proxy voting outcomes on M&A deals |
| title_sort | devil is in the detail investors mispricing of proxy voting outcomes on m a deals |
| topic | Business::Finance Marketing Efficiency Mergers and Acquisitions |
| url | https://hdl.handle.net/10356/154550 |
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