Managerial Perceived Competition and Acquisitions

Abstract

We examine the relations between managerial perceived competition, firms’ tendency to engage in acquisitions, and acquisition gains. We find that firms with higher managerial perceived competition are more likely to acquire other firms. Acquirers with higher perceived competition offer higher acquisition premium to their targets. High perceived competition does not lead acquirers to engage in less profitable acquisitions. To the contrary, we find that acquirers’ perceived competition is positively associated with both total acquisitions gains and gains to acquirer shareholders as measured by abnormal stock returns around the acquisition announcement. Finally, we find no significant association between acquirers’ perceived competition and the improvement in abnormal operating performance for the merged firm after the acquisition.