Journal of Applied Finance & Banking

The Causality between Analysts’ Recommendations and Corporate M&As

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• 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.

   

  JEL classification numbers: G34, G24, G14.

  Keywords: Mergers and acquisitions, Analysts' recommendations, Payment methods, Information quality, Overvaluation hypothesis.