At‐risk acquirers: survival strategy or last‐ditch effort?

Managers of at‐risk firms have incentives to prolong the life of the company or to extract personal wealth prior to firm liquidation, and they can pursue a number of activities in order to achieve these goals. Prior studies have investigated the consequences of managers becoming targets for acquisition. In this study, we examine the consequences of at‐risk firms doing the opposite: buying other firms (i.e., becoming at‐risk acquirers). We find two positive consequences of becoming at‐risk acquirers. At‐risk acquirers (1) avoid delisting due to poor performance and (2) leave at‐risk status in the year following the acquisition. We also find that these benefits are only temporary and come at a cost. Specifically, at‐risk acquirers are less likely to become subsequent targets, and they quickly return to at‐risk status. These results indicate that the decision of the manager of an at‐risk firm to become an at‐risk acquirer buys the manager more time but does not help the firm.