Abstract We find a significant increase of more than 7% in analyst forecast errors following corporate takeover announcements, with analysts overestimating earnings per share more than before. Forecast errors remain at an elevated level for at least two years after the announcement, only slowly returning to their pre-announcement averages. Our findings are robust to various alternative measurements and remain consistent with respect to industry and firm characteristics. A difference-in-differences analysis and a placebo test point to a causal relation. We show that the effect is more pronounced for transactions with a large relative size. It is less pronounced for buyers with a larger analyst following and more positive share price reactions to the announcement. These results shed light on the informational role that analysts play in the context of large mergers and acquisitions that inherently increase firm complexity and asymmetric information. To the best of our knowledge, our research represents the first comprehensive and quantitative analysis of the impact of M&A announcements on forecast errors for the acquiring firm, using extensive post-Sarbanes–Oxley data.
Oenschläger et al. (Thu,) studied this question.