Measuring the Quality of Mergers and Acquisitions

• 成果类型: Article
• 署名作者: Ellahie, Atif; Hshieh, Shenje; Zhang, Feng
• 署名单位: Utah System of Higher Education; University of Utah; City University of Hong Kong; Southern Methodist University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.01225
• 发表日期: 2025
• 关键词: Mergers and acquisitions; deal quality; post-acquisition performance; OVERPAYMENT; overestimation of synergies

摘要

We develop a measure of merger and acquisition (M&A) quality using accounting theory. This measure, implied return-on-equity improvement (IRI), quantifies the minimum improvement in the target's post-acquisition return on equity (ROE) the acquirer must attain to break even on the acquisition price. Employing a large sample of M&As from 1980 to 2018, we find that a high IRI is, on average, less attainable ex post and predicts worse acquirer financial performance. The acquirer's ROE growth over the first three years after the M&A is 11 percentage points lower for high-IRI M&As compared with low-IRI M&As. Worse high-IRI acquirer performance is observable through higher operating costs, tighter financial constraints, lower investments, and larger and more frequent goodwill impairments. We also find that IRI increases with acquiring chief executive officers' overconfidence, incentive misalignment, and difficulty in estimating synergies; IRI decreases with acquirers' financial discipline and due diligence effort. As such, overestimating synergies and managerial incentives that drive overpayment are potential mechanisms underlying IRI's negative association with acquirers' post-M&A performance.