BAFI Academic Seminar
Once Bitten, Twice Shy? Do Firms Learn Following Bad Acquisitions?
Sponsored by: Dept. of Banking & Finance
Speaker(s): Saumya Prabhat
Date & Time: Friday, April 1, 2016 from 10:30 a.m. to Noon
We provide evidence that following bad acquisitions, firms learn and effect changes to avoid repeating their mistakes. While theories of organizational learning postulate that firms should learn from the bad acquisitions, such learning may not occur if agency costs or self-attribution biases predominate. We define a bad acquisition when the acquirer reports a goodwill impairment loss. We find that acquirers make more prudent choices, exhibit greater operational improvements, and gain 1.8% more in shareholder returns on announcement when an acquisition follows a bad one than otherwise. Our results cannot be explained by endogeneity of goodwill impairment and are robust to using announcement return to proxy failure.
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Attachment: Prabhat paper
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