Riding the merger wave: Uncertainty,reduced monitoring,and bad acquisitions |
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Authors: | Ran Duchin Breno Schmidt |
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Affiliation: | 1. Foster School of Business, University of Washington, Seattle, WA 98195, USA;2. Goizueta Business School, Emory University, USA |
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Abstract: | We show that acquisitions initiated during periods of high merger activity (“merger waves”) are accompanied by poorer quality of analysts' forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, merger waves may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during merger waves is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions. |
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Keywords: | G34 G14 L22 |
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