Riding the merger wave: Uncertainty, reduced monitoring, and bad acquisitions

Ran Duchin and Breno Schmidt

Journal of Financial Economics, 2013, vol. 107, issue 1, 69-88

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.

Keywords: Mergers and acquisitions; Governance; Merger waves; Turnover; Uncertainty (search for similar items in EconPapers)
JEL-codes: G14 G34 L22 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (64)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:1:p:69-88

DOI: 10.1016/j.jfineco.2012.07.003

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