Learning from Peers' Private Information

Abstract

I investigate the effects of private information acquisition from M&A due diligence on bidders’ subsequent actions. Using a sample of negotiated and announced M&A deals that fail to close, I find that, following the failed transactions, bidders achieve higher investment efficiency and higher innovation outputs. Cross-sectional cuts demonstrate that the effects are more pronounced when a bidder has greater opportunities to learn from the target firms’ proprietary information. While bidders benefit through M&A negotiations, target firms bear costs from sharing proprietary information, as shown by a modest decline in their innovation and product outcomes. Overall, my study contributes to the understanding of the real effects of learning from peers’ proprietary information.