Why CEOs Surround M&A Announcements with Unrelated Good News

It’s a distraction tactic, according to one study.

by

and

Cynthia E. Devers

by

and

Cynthia E. Devers

August 30, 2019

OJOIMAGES/Getty Images

Summary.

Research has shown that firms anticipate negative market reactions to acquisition announcements, and so they issue unrelated positive news to distract the market and reduce blowback. This tactic is called “impression offsetting.” Can it be a good indicator if a bad deal? In a new study, researchers find that a CEO whose firm issued more unrelated positive press releases around the time of an acquisition exercised 6.7% more options (on average, $220,000) in the next quarter than a CEO whose firm did not issue unrelated positive press releases. This shows that more impression offsetting may be a clue that CEOs aren’t too confident about a deal’s potential to create value.

Mergers and acquisitions (M&A) are among the most consequential strategic decisions managers make. But markets often respond negatively to acquisition announcements, which means investors are skeptical about the transactions, their terms, or managerial motivations.

DG

Daniel L. Gamache is an Assistant Professor in Management at the University of Georgia’s Terry College of Business. He received his Ph.D. in strategic management from Michigan State University. His research takes a behavioral approach to study executive decision making with a particular emphasis on executive characteristics, compensation and social evaluations of the firm and its leaders.
GM

Gerry McNamara is the Eli Broad Professor of Management at Michigan State University. Dr. McNamara received his PhD from the University of Minnesota. His research examines the effect of individual traits, organizational characteristics, and market pressures on strategic perceptions, executive communications, and organizational risk-related decisions.
SG

Scott D. Graffin is a Professor and Synovus Chair in Servant Leadership at the University of Georgia’s Terry College of Business and also an International Research Fellow at Oxford University’s Centre for Corporate Reputation. He earned his Ph.D. at the University of Wisconsin, Madison. His research interests include corporate governance, as well as the influence of reputation and status on organization outcomes.
JK

Jason T. Kiley is an Assistant Professor and Spears Fellow in the Spears School of Business at Oklahoma State University. He earned his Ph.D. from the University of Georgia. His research examines the intersection of firm perceptions, impression management, and strategic decisions, including mergers and acquisitions. Before joining academia, he was an attorney, focusing on the executive compensation and ERISA implications of major corporate transactions.
JH

Jerayr Haleblian is a Strategic Management Professor at the University of California-Riverside. He received his Ph.D. from the University of Southern California. His research focuses on strategic decisions and their performance outcomes in the contexts of mergers and acquisitions and strategic leadership.
CD

Cynthia E. Devers is The Lawrence E. Fouraker Professor in Business at The Mays Business School at Texas A&M University and an International Research Fellow at the Oxford University Centre for Corporate Reputation. She received her Ph.D. from Michigan State University, and her research focuses on the influences of corporate governance and social evaluations on individual and organizational outcomes.

Why CEOs Surround M&A Announcements with Unrelated Good News

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