The Intangibles Song in Takeover Announcements: Good Tempo, Hollow Tune

Mergers and acquisitions are often motivated by an intention to create value from intangible assets. We develop a word list of intangibles and apply it to takeover announcements. One standard deviation more in intangible-related language (“intangibles talk”) lowers announcement returns for the acquirer by 0.53 percentage points and predicts worse operating performance. Bidder managers appear to believe in the deals nonetheless, as evidenced by insider trades, payment choices, and completion probabilities and speed. Overall, takeover announcement texts reveal important information about hard-to-measure aspects of deal quality.