In the paper, Who Writes the News? Corporate Press Releases During Merger Negotiations, which was recently made publicly available on SSRN, we show that firms manipulate their stock prices during merger negotiations in order to affect the terms of the transaction. We argue that this strategy is made possible by the loose regulation of corporate disclosure. In particular, U.S. federal laws generally do not require firms to publicly disclose all material corporate events when they occur. Instead, firms have significant flexibility with respect to the content and timing of their press releases. We show that firms strategically exploit the flexibility afforded by the law to influence their stock prices precisely when they benefit the most from short-term manipulation.

To identify firms with incentives to manage their stock prices, we focus on stock acquisitions, a setting where a short-term change in firms’ stock prices has a long-term effect on merger outcomes. If an acquirer in a stock acquisition can temporarily raise its stock price during a short time window when the stock exchange ratio is determined (usually several weeks), it can issue fewer of its shares for each target share and reduce the true cost of the takeover. To establish causal evidence of price manipulation, we exploit the difference in the time period when the terms of the merger are determined in fixed-exchange ratio vs. floating-exchange ratio stock acquisitions. These two groups of transactions are very similar along firm and deal characteristics, but have a clear dichotomy in the timing of media management incentives.

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