Why Do Managers Make Serial Acquisitions? An Investigation of Performance Predictability in Serial Acquisitions

35 Pages Posted: 22 May 2005 Last revised: 3 Apr 2009

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Dimitris Petmezas

University of Surrey - Surrey Business School

Date Written: April 2009

Abstract

In this paper we assess i) the motivation behind managers' decision to engage in serial acquisitions and ii) whether the quality of an acquisition deal can predict the quality of subsequent deals of the series. We test four potential explanations for serial acquisitions: managerial overconfidence, superior managerial acquisition skill, managerial empire building behavior, and whether the acquisitions comprise a single plan. As a group, serial bidders show no evidence of performance persistence or reversal, but acquirers that generate positive return in a deal exhibit persistent success in subsequent deals. Our evidence indicates that some managers have superior acquisition skills and our results are robust to several acquirer and deal characteristics. Finally, we show that value-increasing deals by a bidder offer useful predictions that those acquisitions will be followed by subsequent value-increasing deals.

Keywords: Acquisitions, bidders, serial acquirers, performance persistence

JEL Classification: G34

Suggested Citation

Croci, Ettore and Petmezas, Dimitris, Why Do Managers Make Serial Acquisitions? An Investigation of Performance Predictability in Serial Acquisitions (April 2009). Available at SSRN: https://ssrn.com/abstract=727503 or http://dx.doi.org/10.2139/ssrn.727503

Ettore Croci (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Dimitris Petmezas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

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