Learning, Hubris and Corporate Serial Acquisitions

47 Pages Posted: 17 May 2005

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Eric de Bodt

NHH-Caltech

Richard Roll

California Institute of Technology

Date Written: February 2, 2007

Abstract

Recent empirical research has shown that, from deal to deal, serial acquirers' cumulative abnormal returns (CAR) are declining. This has been most often attributed to CEOs hubris. We question this interpretation. Our theoretical analysis shows that (i) a declining CAR from deal to deal is not sufficient to reveal the presence of hubris, (ii) if CEOs are learning, economically motivated and rational (in the sense of maximizing their own utility function based on unbiased beliefs), a declining CAR from deal to deal should be observed, (iii) predictions can be derived about the impact of learning and hubris on the time between successive deals and, finally, (iv) predictions about the CAR and about the time between successive deal trends lead to testable empirical hypotheses.

Keywords: hubris, learning, mergers and acquisitions, CEO, CAR

JEL Classification: G34

Suggested Citation

Aktas, Nihat and de Bodt, Eric and Roll, Richard W., Learning, Hubris and Corporate Serial Acquisitions (February 2, 2007). EFA 2007 Ljubljana Meetings Paper, Available at SSRN: https://ssrn.com/abstract=721882 or http://dx.doi.org/10.2139/ssrn.721882

Nihat Aktas (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Eric De Bodt

NHH-Caltech ( email )

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Kraainem, 1950
Belgium
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Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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