Synergy, Managerialism or Hubris? An Empirical Examination of Motives for Foreign Acquisitions of U.S. Firms
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Managerialism
or
Hubris?
An
Examination
of
Motives
for
Acquisitions
of
Firms
U.S.
Anju Seth* UNIVERSITY OF ILLINOIS
Kean P. Song** PRAIRIE VIEW A&M
UNIVERSITY
RichardsonPettit*** UNIVERSITY OF HOUSTON
This study examines the motives underlying foreign acquisitions; of U.S. firms, estimates the extent of value creation associated with such acquisitions, and examines how total gains are shared between acquiring firms and targets. We show that the synergy hypothesis is the predominant explanation for our sample of foreign acquisitions of U.S. firms. However, the hubris hypoth-
esis coexists with the synergy hypothesis- in explaining the acquisitions in our sample that are characterized by positive total gains. The evidence is also consistent with the managerialism hypothesis for the acquisitions in our sample with negative total gains. We show that the incidence of competition is associated with higher total gains, as well as higher gains to targets.
*Anju Seth (Ph.D., University of Michigan) is Associate Professor of Strategic Management at the University of Illinois at Urbana-Champaign. She brings a multi-disciplinary perspective to her research and has published several articles in leading journals on value creation via acquisitions, restructuring, corporate governance, joint ventures and globalization. * *Kean P. Song (Ph.D., University of Houston) is Associate Professor and Interim Department Chair at Prairie View A&M University. His research interests include international finance and investments. ***R. Richardson Pettit (Ph.D., UCLA) is the Duncan Professor of Finance at the University of
Houston. Dr. Pettit's work is primarily in the -area of asset pricing and financial market operations. He has published extensively in the finance journals on information signalling, insider trading and international financial markets. We would like to thank the following for their comments on earlier versions of this manuscript: Claes Bergstrom, David Collis, Dick Dietrich, John Easterwood, John Helmuth, Joe Mahoney, Tom Roehl, and seminar participants at Purdue University, the University of Illinois at Urbana-Champaign, the 1997 Academy of Management meeting, the 1998 European Financial Management Association meeting, and the 1998 Financial Management Association meeting. Thanks also to the anonymous referees and to Thomas Brewer for their constructive comments and suggestions. JOURNAL OF INTERNATIONALBUSINESS STUDIES, 31, 3 (THIRD QUARTER 2000):
387-405
387
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ACQUISITIONS MOTIVESFOR CROSS-BORDER
Grimm's 1997 Mergerstat Review reports that these acquisitions (for brevity, we refer to them as cross-border acquisitions1) increased in number from 154 to 333 in the fifteen-year period between 1982 and 1996, and their value increased from $5.1 billion to $73.5 billion. In light of the increasing importance of the phenomenon, scholars in the fields of i
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