Diseconomies of Managing in Acquisitions: Evidence from Civil Lawsuits

J. Myles Shaver () and John M. Mezias ()
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J. Myles Shaver: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
John M. Mezias: School of Business Administration, University of Miami, Coral Gables, Florida 33124

Organization Science, 2009, vol. 20, issue 1, 206-222

Abstract: The difficulties of managing and coordinating operations as firms expand are expected to increase disproportionately with firm size. If firms face such diseconomies of managing, then acquisitions should make the combined entity more difficult to manage than the two entities operating independently. To document the existence of diseconomies of managing in acquisitions, we examine the change in civil lawsuit judgments involving acquired firms pre- and postacquisition. Civil lawsuit judgments can capture breakdowns in management oversight that cause firms to take actions that a prudent firm would not take or fail to take actions that a prudent firm would take. We find that acquired entities face a significant increase in lawsuit judgments postacquisition. We describe why our findings provide evidence of diseconomies of managing and highlight why managerial diseconomies should be an important consideration when managing or examining acquisition strategies.

Keywords: diseconomies of managing; acquisitions; legal liability; civil lawsuits (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:20:y:2009:i:1:p:206-222

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