Can Acquisition Failure Be Predicted?

66 Pages Posted: 25 Feb 2018 Last revised: 11 Oct 2018

See all articles by Utpal Bhattacharya

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department

Date Written: October 10, 2018

Abstract

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

Bhattacharya, Utpal and Jacobsen, Stacey E., Can Acquisition Failure Be Predicted? (October 10, 2018). SMU Cox School of Business Research Paper No. 18-14. Available at SSRN: https://ssrn.com/abstract=3128481 or http://dx.doi.org/10.2139/ssrn.3128481

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Stacey E. Jacobsen (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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