Forward-Looking Management Discussions and Analysis Disclosure and Merger and Acquisition Outcomes

This study examines how the forward-looking Management Discussions and Analysis (MD&A) disclosure affects Merger and Acquisition (M&A) outcomes. Based on a sample of U.S. public firms for the period 1997–2018, we find that firms with more forward-looking information in MD&As are more likely to become M&A targets. The combined returns of the acquirer and the target around the deal announcement are higher in deals involving target firms with more forward-looking MD&A disclosures. The positive effects on M&A outcomes are more pronounced when forward-looking disclosures are deemed more credible and the underlying meanings are expressed more articulately, regardless of the tone. Targets with more forward-looking disclosures are associated with lower bid premiums, higher acquirer returns, and superior acquirer post-acquisition performance, measured by long-term buy-and-hold returns and financial improvements. Our results, robust to quasi-natural experiments and alternative measures, highlight the role of forward-looking information in reducing uncertainty and improving M&A efficiency.