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- October 8, 2026
- Finance
The Value of M&A Contracts
Date: 2026-09-30
Time: 4:30 PM - 5:50 PM
Venue: 90402 International Hall
Speaker: Prof. Sterling Huang (New York University, Shanghai)
This paper provides the first large-sample evidence on the design and economic consequences of M&A contracts. Using a hand-collected dataset of M&A contracts filed with the SEC between 1996 and 2021, we document a sharp increase in contract length and complexity, with covenants emerging as the fastest-growing component. We show that covenant provisions, particularly those imposed on targets, are positively associated with acquirer stock returns around contract filing dates, while representations and warranties and closing conditions have no significant effect. This pattern reflects the underlying economic logic of M&A contracting: representations and warranties reduce adverse selection at signing, while covenants address moral hazard in the pre-closing period by restricting target conduct between signing and closing. The valuation impact of covenants is stronger when information asymmetry is greater, acquirer’s bargaining power is higher, and acquirer’s institutional ownership is larger. We further find that covenants reduce the likelihood of deal completion, particularly for low-quality deals, suggesting that they function as governance mechanisms that help acquirers avoid value-destroying transactions.
Time: 4:30 PM - 5:50 PM
Venue: 90402 International Hall
Speaker: Prof. Sterling Huang (New York University, Shanghai)
This paper provides the first large-sample evidence on the design and economic consequences of M&A contracts. Using a hand-collected dataset of M&A contracts filed with the SEC between 1996 and 2021, we document a sharp increase in contract length and complexity, with covenants emerging as the fastest-growing component. We show that covenant provisions, particularly those imposed on targets, are positively associated with acquirer stock returns around contract filing dates, while representations and warranties and closing conditions have no significant effect. This pattern reflects the underlying economic logic of M&A contracting: representations and warranties reduce adverse selection at signing, while covenants address moral hazard in the pre-closing period by restricting target conduct between signing and closing. The valuation impact of covenants is stronger when information asymmetry is greater, acquirer’s bargaining power is higher, and acquirer’s institutional ownership is larger. We further find that covenants reduce the likelihood of deal completion, particularly for low-quality deals, suggesting that they function as governance mechanisms that help acquirers avoid value-destroying transactions.