Risks in Mergers and Acquisitions

Using acquirer’s risk-factor disclosure in merger filings, we study the risks faced by acquirers in mergers and acquisitions and how these risks are associated with important merger outcomes. We first establish the validity of acquirer’s risk factor disclosure, and then employ an unsupervised topic modeling approach to divide acquirer’s disclosures into specific risk topics. We find that acquirers emphasize four risks including technology and product, valuation and fairness, accounting information, and ownership and dilution. Our further analyses show that these disclosed risks have significant and diverging relations with acquirer’s post-merger outcomes such as post-merger integration problem and volatility and level of post-merger of operating and stock performance