Rumors, accuracy and the M&A beat

Only one third of stories written about companies being takeover targets between 2000 and 2011 proved to be accurate, according to research by two business school professors.

“Accuracy” was defined by whether the rumored takeover target received an official offer within one year of the story. The researchers discovered that accurate rumor articles are more likely to mention a specific takeover price, to discuss possible bidders, and to indicate that negotiations are in an advanced stage.

The research, by Kenneth Ahern at the University of Southern California and Denis Sosyura at the University of Michigan, reviewed 2,142 articles written about 501 rumors between 2000 and 2011. Of those rumors, only 167 were followed by a public bid for the company. The Wall Street Journal was the most prolific publisher of such articles, with 158 during the time period. It was followed by Dow Jones Newswires with 67 and the New York Times with 38.

“The rumors published in the Wall Street Journal and Dow Jones News Service are also more accurate than the average rumor, with accuracy rates of about 39%, compared to 33% for the average rumor,” wrote the researchers. “In contrast, the Los Angeles Times and NYT Blogs have accuracy rates less than 20%.”

Among the journalists covering mergers and acquisitions during this time period, the researchers found that Dennis Berman of The Wall Street Journal wrote the most accurate articles, with 62.5 percent of his rumored deal stories receiving a public offer within a year. Andrew Ross Sorkin of The New York Times, who also covered mergers and acquisitions during this time period, had a 42.1 percent accuracy rate.

Nikhil Deogun of The Journal had a 53.8 percent accurate rating, while Robin Sidel of The Journal had a 55.6 percent accuracy rating.

Deogun now oversees editorial content at CNBC, while Berman is the business editor of The Journal and doesn’t actively report on M&A anymore. Sorkin also works for CNBC now.

Among media sources, Bloomberg News had the highest accuracy rate — 80 percent — of its rumored deal stories, according to the research. The Los Angeles Times and NYT Blogs both had accuracy rates of 16.7 percent.

“In the literal sense, as long as any person, anywhere, with a degree of knowledge suggests to someone else that a firm is ripe for a takeover, a merger rumor is published in the press as accurate,” noted the authors. “However, this is an extremely low bar for accuracy. It just implies that the journalist is not fabricating the rumor.”

To read the research, go here.