Acquisition Motives and the Distribution of Acquisition Performance
I examine how acquisition motives relate to the distribution of post‐acquisition performance. I argue that acquisitions motivated by operating synergies have the potential to experience greater gains than acquisitions driven by financial synergies but are harder to value and implement, making them more uncertain. Using
SEC
filings, conference calls and press releases to capture acquisition motives, I find that acquirers pursuing operating synergies are more likely to experience highly positive and highly negative long‐term returns than acquirers pursuing financial synergies. I also find that acquisition experience and geographic proximity to targets soften acquirers' extreme downside outcomes in operating synergy acquisitions. My theory and results suggest that approaches that emphasize average outcomes for acquirers and use industry classifications to capture acquisition motives may be incomplete
.
Managerial summary:
Managers engage in acquisitions for various reasons. In this study, I find that reasons related to operating synergies (e.g., revenue growth through new product offerings or cost savings through economies of scale) are more likely to result in extreme high and low performance outcomes for the acquiring firm compared to reasons related to financial synergies (e.g., diversification of cash flow streams). In addition, I find that the acquirer's prior acquisition experience and the geographic proximity between the target and acquirer help soften the extreme low performance outcomes related to operating synergies
. Copyright © 2017 John Wiley & Sons, Ltd.
No keywords indexed for this article. Browse by subject →
Jay B. Barney
Richard A. Bettis, Sendil Ethiraj, Alfonso Gambardella et al.
Laurence Capron, Will Mitchell, Anand Swaminathan
Lee Fleming
Michael C. Jensen, William H. Meckling
Michael D. Kimbrough, Henock Louis
Rikard Larsson, Sydney Finkelstein
Lubomir P. Litov, Patrick Moreton, Todd R. Zenger
Ulrike Malmendier, Geoffrey Tate
Srikanth Paruchuri, Atul Nerkar, Donald C. Hambrick
Showing 50 of 69 references
Darin A. Dredge, Laura T. Madden · 2026
- Published
- Sep 07, 2017
- Vol/Issue
- 38(13)
- Pages
- 2666-2681
- License
- View
You May Also Like
David J. Teece · 2007
10,699 citations
Margaret A. Peteraf · 1993
6,202 citations