Are Frequent Acquirers More Entrenched?

Posted: 2 Mar 2020

Date Written: January 13, 2020

Abstract

We do not find a significant influence of management entrenchment on the firm’s propensity for frequent acquisition, in contrast to the existing studies that show entrenched managers are more likely to become frequent acquirers. We show that entrenched management is less likely to engage in frequent acquisitions because of low strategic managerial ability. Strategic managerial ability is positively associated with the firm’s propensity for frequent acquisition. Entrenched acquirers have lower strategic managerial ability; and lower ability acquirers are more likely to be entrenched. Reducing acquisition frequency exacerbates management entrenchment. Frequent acquisitions further enhance strategic managerial ability, and high-ability management is likely to be more acquisitive. Frequent acquirers are 40 percent less likely to be entrenched compared to non-frequent acquirers. Our results are consistent with the notion that the market for corporate control effectively disciplines frequent acquirers such that their management are less likely to be entrenched. Entrenched acquirers suffer a loss in firm value, which further supports that the market for corporate control is effective in penalizing entrenched management. Frequent acquirers, often being in the market for targets, are disciplined by the market for corporate control. Frequent acquisitions appear to be driven by strategic managerial ability, rather than by management entrenchment.

Keywords: management entrenchment; strategic managerial ability; serial acquirers; corporate control; mergers and acquisitions; managerial power

JEL Classification: G34; M12; M52

Suggested Citation

Mishra, Chandra S, Are Frequent Acquirers More Entrenched? (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=3518415

Chandra S Mishra (Contact Author)

Florida Atlantic University ( email )

Boca Raton, FL 33431
United States

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