1. A reexamination of analysts’ earnings forecasts for takeover targets Good news for takeover target because of information hypothesis or synergy hypothesis 1.Kick-in-the-pants (monitor inefficient management to resolve the agency problem) 2.Sitting-on-the-gold-mines (correct under-valuation to resolve the market inefficiency) 3.Create synergy Examine analysts’earnings forecasts, which is the stand-alone earnings forecast, can separate 3 from others (Why?) Pond’s (1988) findings are consistent with 3 but not 1 or 2 1.Analysts’earnings forecasts for targets are not changed in the announcement month 2.Management resistances leads to negative forecast revisions post the event

2. A reexamination of analysts’ earnings forecasts for takeover targets Two potential biases in Pond 1.Over-optimism will bias revisions downward 2.Auto-correlation bias suggests prior revisions are useful in generating expected forecast revisions Contributions of this paper: take care of the two biases and compute the abnormal (unexpected) forecast revisions Results of this paper supports information hypothesis but do not exclude synergy hypothesis 1.Announcement month abnormal forecast revisions of the current- and following-fiscal-year earnings are positive, whether or not the management resists the takeover! 2.Revision for low Q (under-valued and inefficient management) targets is positive and greater than high Q targets. 3.Resistance will not destroy target value. Cumulative forecast revision is zero, whether or not the resistance succeeds.

3. A reexamination of analysts’ earnings forecasts for takeover targets Collect tender offer announcements from WSJ and analysts’earnings forecasts for targets from IBES Why table 1? FR i,t = (F i,t – F i,t-1 ) / P i Since 20% of analysts revise their forecasts each month, there will be a 4-month period between individual analysts’s updates. Therefore we assume FR i,t follows fourth-order MA process. E[FR i,t ] = K i + 0.2*(K i + FR i,t-1 + FR i,t-2 + FR i,t-3 + FR i,t-4 ) AFR i,t = FR i,t – E[FR i,t ]

4. A reexamination of analysts’ earnings forecasts for takeover targets Why table 3 and 4? Why look at EPS forecasts for both the current year and following year? Why report both mean and % positive? Table 7 and 8 are tests of difference in means or medians between two samples, usually followed by regression. Management resistance may or may not benefit shareholders: consistence of interests v.s. management entrenchment. Under management entrenchment hypothesis, announcement month forecast revisions for resisted target should be negative and lower than friendly target. Under management entrenchment hypothesis, successful resistance should produce negative and lower cumulative forecast revisions than failed resistance.