Does learning offset hubris in serial acquisitions? International Evidence

Abstract

How do serial mergers affect the Cumulative Abnormal Return (CAR) of the acquiring firms ? Although the topic is particularly popular, no consensus has been reached due to c ontradictory evidence If management hubris really can explain the declining CAR, how could this be consistent with learning effect through serial acquisitions? Our results r econcile the two competing explanations and indicate that both the quantitative and temporal dimensions of the measure of merger frequency need to carefully considered. With a comprehensive sample of over 14,000 acquisitions announced and completed internationally from 1st January, 2000 to 31st December, 2010 , o ur results suggest that f requent acquisition s within four year span have significant negative impact on the firm performance five days around announcement date; while with a measure as the cum ulative number of the acquisitions across the whole sample period, the impact is insignificant. The results support the management hubris explanation to the negative CAR . However our results also indicate that it takes time for the acquiring firms to digest and learn from the past experience, the benefit of the learning effect will offset the negative impact caused by the management hubris in the long run. Our analysis is robust to that of the subsamples of OECD countries, developed countries, US companies and EU countries, indicating that frequent acquisition within a relatively short to medium interval is perceived negatively by the market regardless of the differences in culture, anti-trust law, investor protection, competition of the mergers and acquisition markets.