Determinants of firm-specific thresholds in acquisition decisions
Version of Record online: 12 SEP 2007
Copyright © 2007 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Special Issue: Frontiers of Strategic Management Research
Volume 29, Issue 2-3, pages 209–225, March - April 2008
How to Cite
Folta, T. B. and O'Brien, J. P. (2008), Determinants of firm-specific thresholds in acquisition decisions. Manage. Decis. Econ., 29: 209–225. doi: 10.1002/mde.1388
- Issue online: 3 MAR 2008
- Version of Record online: 12 SEP 2007
We develop a model to explain why some firms make acquisitions, while other firms with equal performance expectations do not. We argue that the decision to acquire is not strictly a function of expected abnormal returns, but also depends on a firm's unique acquisition threshold. Our model posits that the threshold is determined by governance, managerial competence, synergy with assets in place, and synergy with growth options. Our empirical findings, drawn from a sample of over 27 000 US acquisitions, offer strong support for the model, suggesting that firms with low thresholds may choose to invest despite comparatively low abnormal returns. Copyright © 2007 John Wiley & Sons, Ltd.