Stock Price Movements Around Acquisition Announcements and Management's Response

Abstract

Whether management employs security price changes as information depends on its assessment of the accuracy of the information set held by the market participants. Managers may possess proprietary data providing them with a statistically dominant private data set. Alternatively, the rational expectations literature suggests that agents combine private information with the information aggregated by security prices when making decisions. In this article, the authors report the results of an empirical investigation designed to determine if managers' actions subsequent to an acquisition announcement are consistent with their learning from stock price changes. The data generally do not support such a hypothesis. Copyright 1991 by University of Chicago Press.