UC Riverside

Do well-established firms communicate differently with the market? If so, does this selection of rhetoric affect investor response? This two-part analysis uses a simple quantitative measure of the rhetorical characteristics of acquisition announcements to model the antecedents and consequences of the communication choices of firms around strategic events. I propose a cost-based theory of impression management, wherein firms seek to leverage reputational capital in place of most costly information. Using data from more than 3,500 acquisitions between 1997-2018, I examine how firms capitalize on a high level of reputational capital to a) limit the level of information released around an acquisition and b) increase the promotional components of acquisition press releases in order to close information asymmetries with investors while minimizing future competitive costs. I find limited support that firms with more reputational capital can substitute this asset for more concrete acquisition details. Then, I examine how the strategic selection of rhetoric in acquisition announcements affects abnormal returns to acquisition announcements. Overall, I find that investors do not respond to rhetorical strategies in press releases. Investor sophistication also does not attenuate these effects.