Herding in the Market for Startup Acquisitions

62 Pages Posted: 25 Aug 2020 Last revised: 25 Aug 2021

See all articles by Annamaria Conti

Annamaria Conti

Fundación Instituto de Empresa, S.L. - IE Business School

Jorge Guzman

Columbia University - Columbia Business School; NBER

Ron Rabi

University of Lausanne

Date Written: August 21, 2020


We document and quantify herding effects in the market for startup acquisitions, examining international acquisitions. Analyzing a sample of 5,725 Israeli venture-backed startups, we implement a machine learning algorithm to generate dyads of technologically similar companies. Difference-in-differences and instrumental variable models show that the initial acquisition of a startup by a foreign company increases the chances that another technologically related startup is subsequently acquired by a foreign company by 61%. Instead, the effect is null when an initial acquisition is enacted by an Israeli firm. Consistent with informational herding, we show that the reaction of foreign firms intensifies with the prominence of an initial acquisition. The less informed foreign acquirers respond more strongly to prominent acquisitions than to non-prominent acquisitions of Israeli startups, relative to the better informed. We further show that Israeli firms minimally react to the foreign acquisition of Israeli startups. The analysis of VC reactions and startup sales prices confirms an increase in the foreign demand for Israeli startups, following an initial acquisition.

Keywords: Entrepreneurship, Acquisitions, Information Frictions, Venture Capital

JEL Classification: G24, G34, G4, L1, L2, L26, O3

Suggested Citation

Conti, Annamaria and Guzman, Jorge and Rabi, Ron, Herding in the Market for Startup Acquisitions (August 21, 2020). Available at SSRN: https://ssrn.com/abstract=3678676 or http://dx.doi.org/10.2139/ssrn.3678676

Annamaria Conti (Contact Author)

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Jorge Guzman

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ron Rabi

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
0041788354395 (Phone)
1020 (Fax)

HOME PAGE: http://https://applicationspub.unil.ch/interpub/noauth/php/Un/UnPers.php?PerNum=1214661&LanCode=37

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