The Impact of M&A Transactions on Acquiring Firm Voluntary Disclosure

We examine how the provision and usefulness of management guidance changes following M&A transactions. M&As introduce a unique source of firm-specific uncertainty, where heightened information asymmetry increases investor demand for guidance about the newly-merged entity’s performance at the same time that heightened fundamental uncertainty makes it more challenging for managers’ to supply this guidance. Examining both EPS and EBITDA guidance, we provide evidence that managers increase guidance in the two years following an M&A on average. The increase in EPS guidance is increasing with investor demand and concentrated in acquiring firms where management previously issued little or no guidance. In contrast, when management routinely provided guidance prior to the M&A, we observe a decline in overall guidance and an increased likelihood of shifting from EPS to EBITDA guidance, especially when supplying guidance is more challenging. We further document that after an M&A, EPS guidance among experienced guiders appears to incrementally reduce implied volatility despite being less accurate, on average, further highlighting important setting-specific nuances on the provision and usefulness of management guidance.