Organization and Strategy Seminar（2015-05）

Topic：Some positive and some negative: CEOs’ impression management when undertaking M&A deals

Speaker:Jing Jin, Rice University

Time: Monday,26 October, 15:30 – 17:00 pm

Location: Room 111, Guanghua Building 2

Abstract:

Existing mergers and acquisitions (M&As) literature documents that acquiring firms often receive negative abnormal returns upon the announcement of M&As. Such negative abnormal returns could be seen as agency costs, which not only diminish shareholders’ wealth but also reduce owners’ confidence in the CEOs. This study aims to explore whether and how CEOs manage impressions of investors when undertaking M&A deals to counter potential negative outcomes. In particular, we argue that CEOs use two different strategies to engage in impression management. First, to mitigate potential negative abnormal returns, CEOs tend to release more positive information around M&A announcements. Second, according to attribution theory, CEOs may release some negative information around M&A announcements along with positive news. This is to both obscure the attribution of potential negative abnormal returns and avoid extreme negative abnormal returns. We further provide two contingencies (information asymmetry and agency problem concerns) under which CEOs are more prone to engage in impression management. Using a sample of 5,921 M&A deals collected from the Securities Data Corporation (SDC) database from 2000 to 2013, we find empirical support for our hypotheses based on zero-inflated negative binomial models.

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