UC Irvine

In this paper, I examine the effects of failed M&A deals on firms’ disclosure decisions. As a firm’s detailed proprietary information is shared with the counterparty during an M&A deal, the value of the information declines if the deal fails. As a result, it becomes less costly for the firm to disclose the information publicly. Consistent with this reasoning, I find increases in the disclosure of proprietary information in the year after firms experience failed deals. I strengthen my inference through a quasi-natural experiment based on the Federal Trade Commission’s guidance, which constrains the exchange of proprietary information during M&A deals. I also provide evidence that investor demand contributes to this effect. Finally, consistent with the notion that increased disclosure of proprietary information effectively reduces information asymmetry, I find decreases in information asymmetry between firms and their investors after failed deals. Overall, my study sheds light on how failed deals affect the disclosure decisions and information environment of the firms involved.