A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organizational Design, Incentives, and Internal Capital Markets / Steven N. Kaplan, Mark L. Mitchell, Karen H. Wruck.

Format:

Book

Author/Creator:

Kaplan, Steven N.

Contributor:

National Bureau of Economic Research.

Mitchell, Mark L.

Wruck, Karen H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5999.

NBER working paper series no. w5999

Language:

English

Subjects (All):

Consolidation and merger of corporations--Accounting.

Consolidation and merger of corporations.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

A Clinical Exploration of Value Creation and Destruction in Acquisitions

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Cambridge, Mass. : National Bureau of Economic Research, 1997.

Summary:

This paper presents clinically-based studies of two acquisitions that received very different stock market reactions at announcement one positive and one negative. Despite the differing market reactions, we find that ultimately neither acquisition created value overall. In exploring the reasons for the acquisition outcomes, we rely primarily on interviews with managers and on internally generated performance data. We compare the results of these analyses to those from analyses of post-acquisition operating and stock price performance traditionally applied to large samples. We draw two primary conclusions. (1) Our findings highlight the difficulty of implementing a successful acquisition strategy and of running an effective internal capital market. Post-acquisition difficulties resulted because: (a) managers of the" acquiring company did not deeply understand the target company at the time of the acquisition; (b) the acquirer imposed an inappropriate organizational design on the target as part of the post-acquisition integration process; and (c) inappropriate management incentives existed at both the top management and division levels. (2) Measures of operating performance used in large sample studies are weakly correlated with actual post-acquisition operating performance."

Notes:

Print version record

April 1997.

Includes bibliographical references.