Learning, hubris and corporate serial acquisitions

Nihat Aktas, Eric de Bodt and Richard Roll
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Nihat Aktas: Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)
Eric de Bodt: Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)

No 2007068, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Recent empirical research has shown that, from deal to deal, serial acquirers' cumulative abnormal returns (CAR) are declining. This has been most often attributed to CEOs hubris. We question this interpretation. Our theoretical analysis shows that (i) a declining CAR from deal to deal is not sufficient to reveal the presence of hubris, (ii) if CEOs are learning, economically motivated and rational, a declining CAR from deal to deal should be observed, (iii) predictions can be derived about the impact of learning and hubris on the time between successive deals and, finally, (iv) predictions about the CAR and about the time between successive deal trends lead to testable empirical hypotheses.

Date: 2007-09-01
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