Are Good Performers Bad Acquirers?
Financial Management, Volume 41, Issue 1, pages 95–118, Spring 2012
Posted: 22 Mar 2010 Last revised: 29 Apr 2012
Date Written: April 24, 2012
We examine how the market reacts to announcements of mergers and acquisitions (M&As) by well-performing acquirers and evaluate the results in light of three hypotheses: 1) managerial ability, 2) empire building, and 3) chief executive officer (CEO) overconfidence. Our results indicate that an empire-building motive drives the relationship between past superior operating performance and M&A announcements. Long-term operating performance drops significantly for acquiring firms with past superior operating performance. Our evidence also indicates that the presence of insider directors helps to alleviate the negative perception of acquisitions made by firms with better operating performance or empire-building CEOs.
Keywords: M&As, CEO overconfidence, Long Term Performance
JEL Classification: G34, G30
Suggested Citation: Suggested Citation