The vicarious wisdom of crowds: Toward a behavioral perspective on investor reactions to acquisition announcements

Mario Schijven, Michael A. Hitt

Research output: Contribution to journalArticlepeer-review

Abstract

Although event-study methodology is invaluable to strategic management research, we argue that the traditional financial economic rationale on which it is based has led scholars to assume away the behavioral mechanisms underlying investor reactions. Building on behavioral theory from management, psychology, and economics, we set out to develop a behavioral perspective on investor reactions to acquisition announcements-one that relaxes the assumption of investors making objective, rational-deductive calculations. Given the information asymmetry they face, we theorize that investors (1) infer management's perception of an acquisition's synergistic potential from the premium it pays, and (2) draw on additional public information to assess the reliability of that perception. Using a multi-industry sample of acquisitions by North American firms, we find considerable support for our behavioral framework.

Original languageEnglish (US)
Pages (from-to)1247-1268
Number of pages22
JournalStrategic Management Journal
Volume33
Issue number11
DOIs
StatePublished - Nov 1 2012
Externally publishedYes

Keywords

  • acquisition premium
  • behavioral theory
  • event-study methodology
  • investor reactions
  • management perceptions

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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