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Corporate Acquisitions, Diversification, and the Firm’s Lifecycle

46 Pages Posted: 23 Sep 2011 Last revised: 5 Sep 2013

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)

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Date Written: September 3, 2013

Abstract

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.

Suggested Citation

Arikan, Asli M. and Stulz, René M., Corporate Acquisitions, Diversification, and the Firm’s Lifecycle (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. Available at SSRN: https://ssrn.com/abstract=1932190 or http://dx.doi.org/10.2139/ssrn.1932190

Asli Arikan

Kent State University ( email )

Kent, OH 44242
United States

Rene Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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