The effects of mergers and acquisitions on the information production of financial markets

This paper shows that mergers and acquisitions (M&As) create opposing effects on the information production of financial markets. A merger between two related firms may generate technological synergy and profitability gains. This results in greater expected trading profits of speculators and incentivizes them to produce private information feeding back into investments. However, when merging firms announce the M&A deal, they typically disclose internal information. This levels the playing field among traders and eliminates speculators' incentive to produce information. The resulting tradeoff determines the equilibrium information production of financial markets.