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

Ettore Croci

Universita’ Cattolica del Sacro Cuore, Milano

Dimitris Petmezas

University of Surrey – Surrey Business School

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.

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

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