The Spillover of Value‐Relevant Information About Targets' Peers During Acquisitions

ABSTRACT This study examines whether merger announcements and subsequent purchase price allocations (PPAs) transfer value‐relevant information about the target's peers. We find that analysts revise earnings estimates for peer firms upward following acquisition announcements that are accompanied by a conference call, relative to revisions for control firms. The magnitude of analyst revision is more pronounced when the ex ante information asymmetry of target peer firms is higher. To provide more direct evidence on the information content of the merger announcements, we further analyze the textual characteristics of conference call transcripts and find that analysts revisions after acquisition announcements (1) increase with the amount of new information released during the merger announcement, (2) increase with the amount of product‐, value‐, or growth‐related information, and (3) increase with the tone of information released in conference calls. We also find greater analyst revisions when PPAs report more write‐ups. These results show that disclosures related to mergers and acquisitions reveal value‐relevant information about targets' peer firms.