Can Firms Learn to Acquire? The Impact of Post-Acquisition Decisions and Learning on Long-Term Abnormal Returns

Abstract

The objective of this paper is to study empirically how post-acquisition decisions and learning from previous acquisition experience affect the long-term performance of acquiring firm. Using financial, accounting and questionnaire response data, we investigate the post-acquisition long-term performance of 47 US bank holding companies that executed 320 acquisitions in the 1986-1995 period and compare it with their competitors' performance. Applying a long-term event study methodology, we regress measures of abnormal financial performance on a set of explanatory variables, which include measures of post-acquisition decisions, such as the degree of integration of the target within the acquirer's structure and the replacement of the top management team, as well as approximations of the acquirer's capability to implement the integration process.

We find that prior acquisition experience per se does not improve post-acquisition performance, but the degree to which acquirers articulate and codify their experience in ad-hoc tools significantly affects long-term performance. Furthermore, a high level of integration of the target within the acquirer's organization improves long-term performance, whereas the replacement of top management worsens it. Also, increasing levels of integration enhance the positive impact of knowledge codification processes. Finally, experiential and deliberate learning are substitutive mechanisms for learning, rather than complements.

Keywords: Banking, Mergers, Acquisitions, Post-acquisition Integration, Learning, Event Study

JEL Classification: G2, G21, G34, L2