Are Acquisitions of Intangibles Less Subject to Agency Problems?

55 Pages Posted: 31 Jul 2019 Last revised: 21 Apr 2020

See all articles by Rong Guo

Rong Guo

SUNY at Binghamton - School of Management

William Mann

Emory University - Department of Finance

Syed Walid Reza

SUNY at Binghamton

Date Written: July 26, 2019

Abstract

We find that acquisitions exhibit less evidence of agency problems when the target possesses more intangible assets. Acquisitions of intangibles are associated with higher announcement returns, superior post-acquisition performance, and less free cash flow, mitigating empire-building concerns. They are also associated with increases in measures of volatility, risk, and managerial effort, mitigating risk aversion and quiet-life concerns. Our evidence suggests that managerial rents that lead to value-destroying acquisitions are mainly associated with tangible assets. Among non-agency-based theories of acquisitions, acquisitions of intangibles resemble a “like buys like” narrative, in which firms acquire targets with complementary technology and similar investment opportunities.

Keywords: intangible assets, mergers and acquisitions, free cash flow, empire building, risk aversion, quiet-life

JEL Classification: G32, G34, O32, O34

Suggested Citation

Guo, Rong and Mann, William and Reza, Syed Walid, Are Acquisitions of Intangibles Less Subject to Agency Problems? (July 26, 2019). Available at SSRN: https://ssrn.com/abstract=3427176 or http://dx.doi.org/10.2139/ssrn.3427176

Rong Guo

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

William Mann (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Syed Walid Reza

SUNY at Binghamton ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

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