Opening M&A to investors: Transparency through interim news events

Increasing the transparency of an organisation’s strategy relating to M&A (mergers and acquisitions) by engaging in voluntary communications with investors may provide benefits to both companies and investors. This study theorises and tests two factors that increase the likelihood of organisations engaging in open strategy when considering an M&A deal: strategic variation (departure from the organisation’s existing strategy) and strategic deviation (divergence from industry norms). Drawing from the existing literature on information asymmetry, we suggest that financial analysts, who are highly specialised in their own field, are likely to publish negative or incomplete portrayals of organisations that are pursuing strategies that represent departures from their existing strategy or deviations from industry norms. The potential impact of these unfavourable portrayals is likely to be heightened during an M&A deal, when the strategic direction of an organisation may come under particularly close scrutiny. Therefore, organisations that foresee or experience unfavourable forecasts from analysts are likely to engage in voluntary disclosures of information regarding their on-going M&A deals. In a dataset comprising of a sample of 554 M&A deals and 1012 associated voluntary communication events over a five-year period, we find that open strategy is associated with the degree to which an organisation’s strategy differs from industry norms; however we also find that it is not associated with the degree to which an organisation’s strategy varies from its existing one. These findings contribute to literature on open strategy, information asymmetry, and managing M&A.