Cost Stickiness, Adjustment Costs and Value Creation in M&A Deals

45 Pages Posted: 16 Aug 2016 Last revised: 2 Oct 2017

See all articles by Youngki Jang

Youngki Jang

University of Texas at Dallas - Naveen Jindal School of Management

Nir Yehuda

University of Texas at Dallas - Department of Accounting & Information Management

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Date Written: March 1, 2017

Abstract

We examine whether cost stickiness is associated with value creation in mergers and acquisitions (M&A). We find that the acquirer’s cost stickiness is negatively associated with the abnormal returns around the acquisition announcement, and deal synergies, and positively associated with post-acquisition divestitures. These findings are consistent with these acquirers facing a higher level of adjustment costs, as suggested by the economic explanation of sticky costs. The target’s cost stickiness is also negatively associated with deal synergies. Relatedly, we show that sticky acquirers purchase sticky targets, confirming the asset complementary theory. In accordance with this finding, we show that sticky acquirers purchase intangible-intensive targets. Collectively, our results highlight the importance of cost stickiness in M&A deals.

Keywords: Cost behavior, mergers and acquisitions, Integration

JEL Classification: M41, G34, G32

Suggested Citation

Jang, Youngki and Yehuda, Nir and Radhakrishnan, Suresh, Cost Stickiness, Adjustment Costs and Value Creation in M&A Deals (March 1, 2017). AAA 2017 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2824132 or http://dx.doi.org/10.2139/ssrn.2824132

Youngki Jang

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Nir Yehuda (Contact Author)

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

Suresh Radhakrishnan

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

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