Information Availability in Acquisition Decisions: The Role of Prior Relations and Rival Bidders

Dieter Smeulders, Henri C. Dekker, Alexandra Van den Abbeele

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This study uses detailed survey data from key decision makers in acquiring firms to test the impact of information availability in corporate acquisitions on pre-acquisition valuation and post-acquisition performance. Our results provide support for the hypothesis that information constraints at the time of target valuation are associated with greater overpayment and weaker post-acquisition performance. Prior ties between firms are found to reduce information constraints to acquiring managers, and thereby reduce overpayment and increase post-acquisition performance. Bids by other potential acquirers are found to signal their private information about the target, providing a substitute for lacking information. This effect holds particularly for non-financial data, which are harder to obtain. These findings suggest that overpayment and underperformance can be prevented not only when an acquirer possesses more information, but also when in the absence of needed information, the presence of rival bidders signals their private information about the value of the target.
Original languageEnglish
JournalJournal of Management Accounting Research
Volume31
Issue number3
Pages (from-to)201-228
Number of pages28
ISSN1049-2127
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Corporate acquisitions
  • Valuation
  • Information availability
  • Rival bidders
  • Prior relations

Cite this

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abstract = "This study uses detailed survey data from key decision makers in acquiring firms to test the impact of information availability in corporate acquisitions on pre-acquisition valuation and post-acquisition performance. Our results provide support for the hypothesis that information constraints at the time of target valuation are associated with greater overpayment and weaker post-acquisition performance. Prior ties between firms are found to reduce information constraints to acquiring managers, and thereby reduce overpayment and increase post-acquisition performance. Bids by other potential acquirers are found to signal their private information about the target, providing a substitute for lacking information. This effect holds particularly for non-financial data, which are harder to obtain. These findings suggest that overpayment and underperformance can be prevented not only when an acquirer possesses more information, but also when in the absence of needed information, the presence of rival bidders signals their private information about the value of the target.",
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Information Availability in Acquisition Decisions : The Role of Prior Relations and Rival Bidders. / Smeulders, Dieter; Dekker, Henri C.; Van den Abbeele, Alexandra.

In: Journal of Management Accounting Research, Vol. 31, No. 3, 01.2019, p. 201-228.

Research output: Contribution to journalJournal articleResearchpeer-review

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