Investor Sentiments, Ill-Advised Acquisitions,
نویسندگان
چکیده
We hypothesize that the root cause of many goodwill write-offs—managers’ public admission of ill-advised corporate acquisitions—is the overpriced shares of buyers at acquisition. Overpriced shares provide managers with strong incentives to invest, and particularly to acquire businesses, even at excessive prices, and doubtful strategic fit, in order to buy themselves out of the problem—overpriced shares—and postpone the inevitable price correction by portraying continued growth. We corroborate our hypothesis by documenting: (1) share overpricing is strongly and positively associated with the intensity of corporate acquisitions, (2) share overpricing is negatively related to the post-acquisition share performance of buyers, indicating a negative relation between overpricing and the quality of acquisitions, (3) share overpricing is positively related to the size of goodwill write-offs, and (4) acquisitions by overpriced firms are associated with significant private and social costs. These findings contribute to the accounting literature on business combinations and goodwill, and to the finance/economics research on investor sentiments and corporate investment. Investor Sentiments, Ill-Advised Acquisitions and Goodwill Impairment
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