This paper examines the hypothesis that, during merger waves, a bidder’s actions provide information for other bidders and the market. I develop a real options model to explore the interplay between acquisition timing and the market reaction to these events. The model predicts a pattern of declining announcement returns along the merger wave and various forms of contagion returns. Consistent with the model’s predictions, in a sample of U.S. mergers, I find that the dispersion in bidders’ post-acquisition performance declines along the merger wave and that the start of a merger wave is associated with an increase in the conditional correlation of a bidder’s stock returns and the stock returns of other bidders. Received February 2, 2013; editorial decision March 1, 2017 by Editor Paolo Fulghieri.

IPOs with underwriters that retain an elite law firm exhibit a lower average first-day return. This empirical pattern remains after controlling for an extensive set of proxies associated with existing explanations of IPO initial returns. We rationalize this finding with a pre-IPO pricing model, in which underwriters convey their lack of conflicts of interest to the issuer by engaging an elite law firm. Consistent with this selection channel and our model’s predictions, we find a lower incidence of elite law firm involvement and a larger difference in average first-day return associated with elite law firms during the dot-com period. We document similar findings with respect to the dispersion of IPO first-day returns and a pattern in the issuers’ re-hiring decision of investment banks consistent with our theory.