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Industry Merger Intensity and Cost of Capital
Author(s) -
Mamun Abdullah,
Mishra Dev
Publication year - 2012
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2012.01157.x
Subject(s) - cost of capital , business , equity (law) , equity capital , systematic risk , monetary economics , cost of equity , implicit cost , economics , industrial organization , finance , microeconomics , capital market , total cost , accounting , profit (economics) , political science , law
Using a panel of industry‐average implied cost of equity capital and the value of prior year aggregate industry mergers, we find strong evidence that the industry cost of equity capital is negatively associated with industry merger activity. Our evidence is consistent with greater media coverage, analyst following, or increase in investor attention associated with industry merger activity lowering the required return on equity for firms in an industry that is not involved in merger activity via the ‘information risk’ or ‘incomplete information’ channels.