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Chair der Sitzung: Olaf Korn, Georg-August-Universität Göttingen
Ort:Virtueller Raum 5
Is hedging for believers? The role of expectations in optimal production and hedging decisions
Martin Reinke1, Richard Peter2
1LMU München, Institut für Finance & Banking, Deutschland; 2University of Iowa, Department of Finance, USA
We study theoretically how firms incorporate their market view into production and hedging decisions. Several motivating examples suggest that optimism reduces the demand for hedging while ambiguity raises it when the firm’s market view is favorable. We analyze the production and hedging decisions of Sandmo’s (1971) competitive firm in a general model of smooth ambiguity aversion (Klibanoff et al., 2005). We distinguish between concordant and discordant uncertainty depending on whether the profitability and behavioral effects of ambiguity go in the same or opposite direction. We then identify restrictions on the firm’s ambiguity preferences that allow for clear comparative static effects of optimism, pessimism, and greater ambiguity on production and hedging. Our results explain how differences in market views and ambiguity preferences generate cross-sectional variation in the demand for hedging and shed new light on so-called “selective hedging.”
Managerial Bullshitting and M&A Performance
Ludwig-Maximilians-Universität München, Deutschland
This study examines takeover motives stated by CEOs in press releases and general media. I find that the more motives are claimed by the manager for pursuing M\&As, the poorer the transaction. Specifically, managers use special merger rhetoric to whitewash a deal which leads to inferior short- and long-term performance. For example, if a long-short portfolio strategy is applied on single vs. multi-motive bidders, excess returns of approx. 13\% can be achieved after five years. Claiming many M\&A synergies is linked to a bullshitting behavior and managerial overconfidence to which an average shareholder overreacts. However, institutional investors see the manager’s impression management through and correctly incorporate the single- vs. multi-M\&A information into prices already at deal announcement. If complexities with regard claimed synergies are reduced, the average shareholders' behavioral bias of overreaction is decreased. When computational linguistics are applied to objectively quantify M\&A synergies, the results are even more significant.
M&A communication and analysts’ forecasts: Evidence from conference calls
Ruhr-Universität Bochum, Deutschland
In this paper, I examine the impact of voluntary disclosure around M&A announcements on analysts’ forecast properties. Using conference calls held in conjunction with M&A transactions (M&A calls), I find that analysts’ earnings forecasts for firms providing additional transparency are more accurate and less dispersed relative to those that do not. I also find that these relations are stronger for larger deals, higher analyst participation, and M&A calls that provide more precise information. My results are robust for different econometric specifications, including controlling for fixed-effects, confounding events and self-selection bias. Overall, these findings underscore the importance of capital market communication for financial analysts, especially when confronted with increased uncertainty in non-routine accounting events.