Sentiment-Driven Merger Waves

Tian Han, Abby Ghobadian, Michael A. Hitt, R. Duane Ireland, Nicholas O'Regan

Research output: Contribution to journalConference abstract

Abstract

In this study, we examine the link between the industry-specific optimism and the formation of merger waves as well as the impact of firm-specific optimism on mergers’ value destruction. Mergers and acquisitions are among the most frequently exercised strategic decisions, often occurring in waves. The extant literature draws on neo-classical or behavioral theory to explain the formation of merger waves. The neo-classical theory fails to fully explain post-merger waves value destruction. A void filled by the behavioral theory drawing primarily on the overvaluation concept and principally neglecting the function of sentiment, as a critical component, in the formation of merger waves and the post-wave value destruction. Through large-scale textual analysis of news releases, this study provides direct evidence that industry-specific optimism plays a pivotal role in the formation of merger waves. Further, we demonstrate that firm-specific optimism, fostered by industry-specific optimism, creates managerial overconfidence, leading to significant value destruction. Our research sheds new light on why merger waves occur and why merger waves result in inadvertent outcomes."
Original languageEnglish
Article number15380
Number of pages1
JournalAcademy of Management Proceedings
Volume2020
Issue number1
Early online date29 Jul 2020
DOIs
Publication statusPublished - 1 Aug 2020
Event80th Annual Meeting of the Academy of Management - Online
Duration: 7 Aug 202011 Aug 2020

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