Does the tone in M&A announcement filings capture the shareholder’s value creation? A textual analysis approach.

We provide evidence of how the effect of tone used in merger-related SEC filings on bidder stock returns depends on the event window analyzed. We find how, on the short-run around announcement, bidder abnormal returns are higher the more negative the filing is, while returns decrease when the tone is less negative. On the contrary, on the very short-run around publication, market sentiment follows the filing sentiment. We attribute this pattern to the contrasting behavior of investors and speculators: if the first ones read the filing to understand the risks of the merger, awarding those managers who are conscious about the risks of the deal, speculators use the filing sentiment as a guideline to take profits immediately. Finally, we provide further evidence of how textual analysis alone is not the key factor in explaining bidder abnormal returns.