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date: 26 July 2021

Mergers and Acquisitions: Long-Run Performance and Success Factorslocked

Mergers and Acquisitions: Long-Run Performance and Success Factorslocked

  • Luc RenneboogLuc RenneboogDepartment of Finance, Tilburg University
  •  and Cara VansteenkisteCara VansteenkisteBusiness School, University of New South Wales

Summary

Despite the aggregate value of M&A market transactions amounting to several trillions dollars on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, many factors that increase M&A performance in the short run fail to relate to sustained long-run returns. In order to understand value creation in M&As, it is key to identify the firm and deal characteristics that can reliably predict long-run performance.

Broadly speaking, long-run underperformance in M&A deals results from poor acquirer governance (reflected by CEO overconfidence and a lack of (institutional) shareholder monitoring) as well as from poor merger execution and integration (as captured by the degree of acquirer-target relatedness in the post-merger integration process). Although many more dimensions affect immediate deal transaction success, their effect on long-run performance is non-existent, or mixed at best.

Subjects

  • Econometrics, Experimental and Quantitative Methods
  • Economic Development

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