The Unexpected Cost of Acquisitions by Elite Companies

Expert on mergers and acquisitions available to speak to media about how strategic business decisions affect firms’ reputations and performance

An image of people shaking hand to illustrate a business deal

Investors respond more negatively to acquisition announcements from high-reputation firms than other firms, according to a UCR-led study.

RIVERSIDE, Calif. (www.ucr.edu) — Jerayr “John” Haleblian, a professor of management at the University of California, Riverside’s School of Business, is available to speak to media about mergers and acquisitions as strategic business decisions and their impact on firms’ performance.

Haleblian said the process of mergers and acquisitions could become simpler under the Trump Administration, with less emphasis on weeding out anti-competitive mergers. Such government action, though, only occurs in a minority of cases.

In his latest paper, recently accepted for publication in Strategic Management Journal, Haleblian and his colleagues studied the acquisition behaviors of high-reputation firms, showing that these firms make more acquisitions and more diverse acquisitions than their non-elite counterparts. However, these acquisitions caused high-reputation firms to take a hit from investors.

Jerayr “John” Haleblian

“High-reputation firms engage in more acquisitions to meet investors’ high expectations, but our research showed that the market responds more negatively to acquisition announcements from high-reputation firms than it does to acquisition announcements from other firms,” Haleblian said.

Specifically, a $50 billion market capitalization by a high-reputation firm would encounter a $300 million acquisition penalty versus a similar firm without a high reputation, the study showed.

Haleblian said the findings highlight the “double-edged sword” of reaching elite status.

“High-reputation firms are rewarded based on their ability to consistently meet investors’ expectations of high growth, value and quality, but they may also be punished following actions that challenge stakeholders’ expectations,” he said. “High-reputation firms need to figure out how to make acquisitions appeal to their investors; otherwise they will likely pay a penalty through a loss of investor confidence.”

Haleblian’s study “High-Reputation Firms and Their Differential Acquisition Behaviors,” was coauthored with Michael Pfarrer from the University of Georgia and Jason Kiley from Oklahoma State University. A copy is available to journalists on request.

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