Can Acquisition Failure Be Predicted?
66 Pages Posted: 25 Feb 2018 Last revised: 11 Oct 2018
Date Written: October 10, 2018
We examine whether realized value destruction is predicted by the market at acquisition announcement. To identify acquisition failure, we manually construct a sample of transactions with large goodwill write-downs. We find announcement returns fail to forecast the probability and magnitude of future write-downs. Prediction improves for large, public target, and large acquirer transactions, but errors remain large. Announcement returns also do not capture other ex-post symptoms of failure – poor stock and operating performance, distressed delisting, and CEO turnover. Our evidence suggests that acquisition value destruction may be largely triggered by latent factors that are unknown to the market at announcement.
Keywords: Mergers, Acquisitions, Value Destruction, Acquisition Failure, Acquirer Abnormal Return, Overpayment, Goodwill, Impairment
JEL Classification: G34, G14, G32, G02
Suggested Citation: Suggested Citation