50 Pages Posted: 6 Mar 2008 Last revised: 31 Jan 2012
Date Written: January 1, 2012
We show that acquisitions initiated during periods of high merger activity (“merger waves”) are accompanied by poorer quality of analysts’ forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, merger waves may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during merger waves is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions.
Keywords: mergers and acquisitions, governance, merger waves, turnover, uncertainty
JEL Classification: G34, G14
Suggested Citation: Suggested Citation
Duchin, Ran and Schmidt, Breno, Riding the Merger Wave: Uncertainty, Reduced Monitoring, and Bad Acquisitions (January 1, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1102796 or http://dx.doi.org/10.2139/ssrn.1102796