Seminar (Dept. of General Management & Accounting)

Title: The Impact of Corporate Takeover Activities on Analyst Optimism: Evidence from International Mergers and Acquisitions Laws

Speaker: Tracy Wang (Australian National University)

Time: 10:00am, December 26th (Thursday), 2024

Venue: Room502, Mingde Business Building

Language: Chinese/English

ABSTRACT:

This study examines how mergers and acquisitions (M&A) laws influence sell-side analysts' forecast optimism. While prior research attributes analyst optimism largely to personal incentives such as career advancement and commission-based compensation, we develop a new theoretical framework that emphasizes broader strategic motives. Specifically, we propose that analysts increase forecast optimism as a strategic response to protect their accumulated firm-specific knowledge and mitigate risks associated with their portfolio instability, particularly in the face of regulatory changes. We use the passage of M&A laws, which increase takeover threats and therefore the risk of analyst portfolio disruption, as an ideal setting to test this theory. Using a difference-in-differences design and a sample of over 30,000 firm-year observations from 33 countries, we find a significant increase in analyst forecast optimism following M&A law reforms. This effect is more pronounced in countries with stronger investor protections and for laws that actively promote takeover activity. Our findings suggest that M&A laws inadvertently drive analysts to issue more optimistic forecasts as a strategic response to regulatory shifts, providing new insights into the dynamics of analyst behavior under changing market conditions.