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

See all articles by H. Kent Baker

H. Kent Baker

American University - Kogod School of Business

Shantanu Dutta

The University of Ontario Institute of Technology (UOIT)

Samir Saadi

Smith School of Business

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business

Date Written: April 24, 2012

Abstract

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

Baker, H. Kent and Dutta, Shantanu and Saadi, Samir and Zhu, Peng Cheng, Are Good Performers Bad Acquirers? (April 24, 2012). Financial Management, Volume 41, Issue 1, pages 95–118, Spring 2012. Available at SSRN: https://ssrn.com/abstract=1573211 or http://dx.doi.org/10.2139/ssrn.1573211

H. Kent Baker (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1949 (Phone)
202-885-1992 (Fax)

Shantanu Dutta

The University of Ontario Institute of Technology (UOIT) ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Samir Saadi

Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business ( email )

3601 Pacific Ave.
Stockton, CA 95211
United States
209-946-3904 (Phone)
209-946-2586 (Fax)

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