Mandatory Disclosure and Takeovers: Evidence from Private Banks

We investigate the role of mandatory financial disclosure in the takeover market for privately held U.S. banks. Public financial information plays a critical role in the takeover market as acquirers rely on it to identify potential targets and conduct preliminary due diligence. Using a difference-in-differences research design around a regulatory disclosure mandate that changed the frequency and granularity of financial disclosure for certain banks, we find that banks with reduced and less frequent disclosure are less likely to be targeted in M&A transactions than other banks. Acquirers earn lower bid-announcement returns when targeting banks with reduced and less frequent disclosures. We also show that reduced mandatory disclosure deters acquirers from bidding for geographically distant targets. Finally, the impact of the disclosure mandate is more severe for banks that experience a more significant loss of publicly available information. Overall, we shed light on the critical role of mandatory financial reporting in the takeover market.