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http://ssrn.com/abstract=1932190
 
 

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Corporate Acquisitions, Diversification, and the Firm’s Lifecycle


Asli M. Arikan


Ohio State University (OSU) - Department of MHR

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

September 3, 2013

Charles A. Dice Center Working Paper No. 2011-18
Fisher College of Business Working Paper No. 2011-03-018
ECGI - Finance Working Paper No. 317/2011

Abstract:     
Theories of corporate finance predict that young firms make acquisitions to exploit growth opportunities, while mature firms do so because they lack growth opportunities. Further, mature firms are more likely to make wealth-destroying diversifying acquisitions because of agency problems. Contrary to these theories, we find that, while across IPO cohorts young and mature firms acquire more than middle-aged firms, young and mature firms acquire for similar reasons. Firms with better growth opportunities and performance are more likely to make acquisitions irrespective of their lifecycle stage. Moreover, both young and mature firms have similar propensities to make diversifying acquisitions. The market’s reaction to acquisition announcements enables us to reject the hypothesis that managers of mature firms are more likely to make value-destroying acquisitions than managers of young firms.

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Date posted: September 23, 2011 ; Last revised: September 5, 2013

Suggested Citation

Arikan, Asli M. and Stulz, Rene M., Corporate Acquisitions, Diversification, and the Firm’s Lifecycle (September 3, 2013). Charles A. Dice Center Working Paper No. 2011-18; Fisher College of Business Working Paper No. 2011-03-018; ECGI - Finance Working Paper No. 317/2011. Available at SSRN: http://ssrn.com/abstract=1932190 or http://dx.doi.org/10.2139/ssrn.1932190

Contact Information

Asli M. Arikan
Ohio State University (OSU) - Department of MHR ( email )
2100 Neil Avenue
Columbus, OH 43210
United States
HOME PAGE: http://fisher.osu.edu/departments/management-and-hr/faculty/asli-arikan/
Rene M. Stulz (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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