1. Do Managerial Objectives Drive Bad Acquisitions?
Chen PengFei

2. CONTENT 01 02 03 04 05 06 07 08 The Basic Information of the Paper
Abstract 03
Literature Review
Hypothesis
CONTENT 04 05
Construction of Samples 06
Measurement of variables 07
Preliminary Evidence 08
Implications

3. P PART 1 PART 1 The Basic Information of the Paper 请输入你的标题
Title: “Do Managerial Objectives Drive Bad Acquisitions?”
Author: RANDALL MORCK, ANDREI SHLEIFER, and ROBERT W. VISHNY
Publisher: THE JOURNAL OF FINANCE（SSCI）
Year: 2016 P
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4. P PART 2 PART 1 Abstract 请输入你的标题
In a sample of 326 US acquisitions between 2002 and 2014, three types of acquisitions have systematically lower and predominantly negative announcement period returns to bidding firms.
The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target, and when its managers performed poorly before the acquisition.
These results suggest that managerial objectives may drive acquisitions that reduce bidding firms' values. P
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5. P PART 3 PART 1 Literature Review（1） 请输入你的标题 Traditional M & A theory
Why bidding firms' managers might overpay P
Average returns to bidding shareholders from making acquisitions are at best slightly positive, and significantly negative in some studies (Bradley, Desai and Kim 1988, Roll 1986)
reducing the wealth of their shareholders as opposed to just revealing bad news about their firm. According to Roll (1986)；
Managers of bidding firms are infected by hubris, and so overpay for targets because they overestimate their own ability to run them
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6. Relatedness--managers might be willing to
PART 3
PART 1
Literature Review（2）
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Author's Point of View
Relatedness--managers might be willing to
overpay P
when a firm makes an acquisition or any other investment, its manager considers both his personal benefits from the investment and the consequences for the market value of the firm；
When an investment provides a manager with particularly large personal benefits, he is willing to sacrifice the market value of the firm to pursue that investment.
First, if managers themselves are not properly diversified, they would diversify the holdings of the firm to reduce the risk to their human capital;
Second, to assure the survival and continuity of the firm even when shareholder wealth maximization dictates shrinkage or liquidation, managers would try to enter new lines of business;
Third, when poor performance of the firm threatens a manager's job, he has an incentive to enter new businesses at which he might be better.
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7. P PART 4 PART 1 Hypothesis 请输入你的标题
H1:Management objectives drive bad acquisitions from differences in buyout returns.
H2:Takeover premia may overestimate the efficiency gains from hostile bustup takeovers.
H3:The management goal of most friendly acquisitions leads to a hostile takeover. P
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8. PART 5
PART 1
Construction of Samples（1）
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9. PART 5
PART 1
Construction of Samples（2）
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10. P PART 6 PART 1 Measurement of variables(1) 请输入你的标题
Relatedness Measures
Target Growth Measure P
we use the Dun and Bradstreet Million Dollar Directory (MDD) to obtain the 4-digit SIC codes of the three main lines of business (by sales) that the firm operates in.
The correlation coefficient of monthly stock returns between the target and the bidder over the three years prior to the acquisition.
We use the total growth rate of sales between 5 years before the acquisition and the year before, defined as log(S(t-1)) - log(S(t-6)), where t is the year of the acquisition, and S(x) is constant dollar sales in year x from COMPUSTAT using the CPI as the deflator.
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11. P PART 6 PART 1 Measurement of variables(2) 请输入你的标题
Measures of Past Performance of the Bidder
Other Variables Used in the Analysis P
One based on stock returns (including dividends).--difference between the cum dividend stock return of the bidder (from CRSP).
The other based on growth of income.- -We use the top three 4-digit SIC codes that the bidder operates in.
we use a dummy variable equal to 1 when multiple bidders are involved in the contest.
we examine whether the returns to bidders in related and unrelated acquisitions.
We include a dummy variable for whether the bidder's offer included any stock.
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12. PART 7
PART 1
Preliminary Evidence(1)
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13. PART 7
PART 1
Preliminary Evidence(2)
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14. PART 7
PART 1
Preliminary Evidence(3)
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15. PART 8
PART 1
Regressions
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16. P PART 9 PART 1 Implications 请输入你的标题
Although this paper has focused on managerial objectives in making mostly friendly acquisitions, the results may also shed light on the source of gains in hostile bust-up takeovers, leveraged buyouts, and defensive recapitalizations involving large scale divestitures. Our finding that in the 2000s the stock market punishes unrelated diversification is consistent with the view that the source of bust-up gains in the 2010s is the reversal of the unrelated diversification of the 2000s and the 1990s. Hostile bust-up takeovers simply undo past conglomeration.
Our finding that managerial objectives drive bad acquisitions suggests a different interpretation of the gains from bust up takeovers. Raiders in these deals facilitate the sale of each piece of the target to the highest bidder. Part of the gain from this activity is doubtless the improvement in the operations of particular divisions under a more talented or a better motivated management team.
By allowing each buyer to overpay only for the piece of the target he really wants, the raider can collect more than any single bidder would pay for the whole target. This suggests that takeover premia may overestimate the efficiency gains from hostile bust up takeovers. P
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17. P PART 10 PART 1 References 请输入你的标题
Amihud, Yakov and Baruch Lev, 1981, Risk reduction as a managerial motive for conglomerate
mergers, Bell Journal of Economics 12,
Asquith, Paul R., R. F. Bruner, and David W. Mullins, Jr., 1987, Merger returns and the form of
financing, Working paper, Harvard Business School.
Baumol, William J., 1959, Business Behavior, Value and Growth (Macmillan, New York).
Bradley, Michael, A. Desai, and E. Han Kim, 1988, Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms, Journal of Financial
Economics 21, 3-40.
Donaldson, Gordon, 1984, Managing Corporate Wealth (Praeger, New York). and Jay Lorsch, 1983, Decision Making at the Top (Basic Books, New York).
Dun and Bradstreet, , Million Dollar Directory (Dun and Bradstreet, New York).
Hall, Bronwyn H., 1988, The effect of takeover activity on corporate research and development, in Alan J. Auerbach, ed.: Corporate Takeovers: Causes and Consequences (University of Chicago Press, Chicago, IL).
Jarrell, Gregg and Anette Poulsen, The returns to acquiring firms: Evidence from three decades, Working paper, University of Rochester.
Jensen, Michael C., 1986, Agency cost of free cash flow, corporate finance, and takeovers, American Economic Review 76,
Lang, Larry, Rene M. Stulz, and Ralph A. Walkling, 1989, Tobin's q and the gains from successful
tender offers, Journal of Financial Economics 24,
Lewellen, Wilbur, Claudio Loderer, and Ahron Rosenfeld, 1985, Merger decisions and executive stock ownership in acquiring firms, Journal of Accounting and Economics 7,
Mitchell, Mark L. and Kenneth Lehn, 1990, Do bad bidders become good targets?, Journal of Political Economy, Forthcoming.
Morck, Randall, Andrei Shleifer, and Robert W. Vishny, 1989, Alternative mechanisms for corporate control, American Economic Review 79,
Roll, Richard, 1986, The hubris hypothesis of corporate takeovers, Journal of Business 59,
Servaes, Henri, 1988, Tobin's Q, agency costs and corporate control, Working paper, University of
Chicago. Shleifer, Andrei and Robert W. Vishny, 1988, Value maximization and the acquisition process, Journal of Economic Perspectives 2, 7-20.
and Robert W. Vishny, 1990, Managerial entrenchment: The case of manager-specific investments, Journal of Financial Economics, Forthcoming. You, Victor L., Richard E. Caves, James S. Henry, and Michael M. Smith, 1986, Mergers and bidders‘ wealth: Managerial and strategic factors, in L. G. Thomas, ed.: The Economics of Strategic Planning (Lexington Books, Boston, MA). P
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