Distraction by the Release of Economic Indicators and the Wealth Effects of Takeovers

We show that acquirers exploit the market’s distraction by newly released economic indicators to announce value-destroying acquisitions. This strategy is effective in private target acquisitions due to the difficulty of valuing private companies. Acquirers in value-destroying private target acquisitions are more likely than public target acquirers to time their announcements during days when key economic indicators are released. After correcting for selection bias, private target acquirers during the time of the release of key economic indicators experience negative abnormal returns. Because market distraction reduces the initial negative reaction, the magnitude of these losses becomes more noticeable during the post-acquisition period.