When friends become foes: Disclosure decisions after failed M&A deals

Abstract In this paper, I examine the effects of failed mergers and acquisitions (M&A) deals on firms' disclosure decisions. As a firm's detailed proprietary information is shared with the counterparty during an M&A deal, the value of the information is expected to decrease if the deal fails. As a result, it may become less costly for the firm to publicly disclose the information. Consistent with this reasoning, I find increased disclosure of proprietary information in the year after firms experience failed deals. Evidence from cross‐sectional tests and a quasi‐natural experiment strengthens this inference. I also show that investor information demand contributes to the increased disclosure of proprietary information after failed deals. In addition, consistent with an increase in proprietary information provided to investors, I find reduced information asymmetry after failed deals. Finally, I document diminished future performance among firms that increase the disclosure of proprietary information after failed deals. Overall, my study sheds light on how failed deals impact firms' disclosure decisions, information environment, and future performance.