Management practices and M&A success
93 Pages Posted: 7 Dec 2020 Last revised: 13 Sep 2021
Date Written: December 5, 2020
We study whether management practices determine merger and acquisition (M&A) success. We model management as an unobserved (latent) variable in a standard microeconomic model of the firm and derive firm-year management estimates. We validate these estimates against benchmark survey data on management practices and by using Monte Carlo simulation. We show that our measure is among the most important determinants of value creation in M&A deals, substantially increasing the predictive power of models that explain cumulative abnormal returns. Thus, we offer a measure of management practices that identifies the best-performing M&As. Our results are robust to the inclusion of acquirer fixed effects and many control variables, and to several other sensitivity tests. We identify the Q-theory as the key mechanism driving our results.
Keywords: Mergers and acquisitions; Management practices; Acquirer returns
JEL Classification: G14; G34; J24
Suggested Citation: Suggested Citation