Foreign Acquisitions and Managerial Discretion

Kenneth K Yung

Review of Quantitative Finance and Accounting, 2001, vol. 16, issue 1, 53-63

Abstract: Foreign acquisitions have been growing dramatically since the 1980s despite academic studies showing that shareholders of acquirers generally do not realize any significant gain. In this paper, we investigate whether foreign acquisitions are motivated by managerial self-interest. Logistic regressions are performed to establish a link between foreign acquisitions and the acquirer's free cash flow. The results show that foreign acquisitions of low-Q firms are strongly influenced by managerial discretion. In addition, acquisitions of low-Q firms are conducted without consideration of the performance of the acquirers. Foreign acquisitions of high-Q firms, however, do not represent overinvestments. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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