Hubris , Learning , and M & A

Recent empirical results have found a declining trend in the cumulative abnormal return (CAR) of acquiring firms during an M&A program. Should one conclude that CEOs undertaking M&As are infected by hubris and unable to learn? We first confirm the existence of this declining trend. However, we find a positive CAR trend for CEOs most likely to be infected by hubris and a negative (and significantly different) trend for likely rational CEOs. This supports the learning hypothesis and conforms to the theoretical analysis of Aktas et al. (2005). Moreover, the empirical evidence is broadly consistent with theoretical predictions about the implications of learning for the time between successive M&A deals. We conclude that CEO behavior reveals substantial learning during acquisition programs.