Consistent estimation of cross-sectional models in event studies

Event studies often include cross-sectional regressions of announcementeffects on exogenous variables. If the event is voluntary andinvestors are rational, then standard OLS and GLS estimatorsare inconsistent. Consistent ML estimators are constructed fora cross-sectional model of horizontal mergers relating announcementeffects to exogenous characteristics of firms and industries.The OLS and ML estimates differ dramatically for bidders butnot for targets. The evidence suggests that manager of bidders,but not targets, have valuable private information about thepotential synergies from proposed mergers.