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Market Misvaluation, Managerial Horizon, and Acquisitions

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  • Huasheng Gao

Abstract

This paper analyzes the impact of managerial horizon on mergers and acquisitions activity. The main predication is that acquiring firms managed by short‐horizon executives have higher abnormal returns at acquisition announcements, less likelihood of using equity to pay for the transactions, and inferior postmerger stock performance in the long run. I construct two proxies for managerial horizon based on the CEO's career concern and compensation scheme, and provide empirical evidence supporting the above prediction. Moreover, I also demonstrate that long‐horizon managers are more likely to initiate acquisitions in response to high stock market valuation.

Suggested Citation

  • Huasheng Gao, 2010. "Market Misvaluation, Managerial Horizon, and Acquisitions," Financial Management, Financial Management Association International, vol. 39(2), pages 833-850, June.
    • Handle: RePEc:bla:finmgt:v:39:y:2010:i:2:p:833-850
    DOI: 10.1111/j.1755-053X.2010.01094.x
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