We examine the textual content of merger and acquisition related SEC filings in an effort to understand the role of managerial attitudes and beliefs in merger negotiations and outcomes. Using a textual algorithm to identify the degree to which filings of bidders and targets exhibit negative/cautious tones vs. positive/optimistic tones, we find that bidders employing the most optimistic language in their filings actuallyexperience the worst long-run performance following the transactions. In contrast, bidding managers who appear to acknowledge and understand the risks of the transactions experience relatively better post-merger performance. For targets, we use the tone of their filings as a measure of how positive or negative their management teamsare towards the proposed transaction. We find that target filings are more negative for deals with lower initial premiums, and that negative filings are associated with lower deal completion rates. For completed mergers, bidders are more likely to increase premia for resistant targets. Thus our analysis of the textual content of merger filings appears to give us a new method for investigating the role of bidder and target attitudes and beliefs on merger outcomes.
Read
