Corporate Acquisitions, Diversification, and the Firm’s Lifecycle
Asli M. Arikan
Kent State University
René 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
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.
Number of Pages in PDF File: 46
Date posted: September 23, 2011 ; Last revised: September 5, 2013
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