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Proceedings of the 2nd International Conference on Corporate Governance Garrow

A New Hypothesis on the Determinants of Acquisitions

Nigel Garrow
Introduction Merger and acquisition (M&A) activity is a significant factor in business in most advanced economies. According to Thomson Reuters, the value of M&A deals completed globally during the 12 months to November 2009 was US$1.8 trillion. However, the acquirers’ shareholders often lose value. Much of the literature on M&A is centred on the UK and US markets, with only a modest level of research within Australia This paper suggests a new proposition to explain why M&A activity may be value destroying for the acquirers: Success or failure for the acquiring firm’s shareholders in M&A is a function of the combined tenure, personal motivation, and recent performance of the Chairman and Chief Executive Officer (CEO) of the acquiring firm. This examination of the combined effectiveness of the Chairman and CEO is not something that appears to have been undertaken before. The paper will present the constituent hypotheses of the main proposition, followed by a literature review, a presentation of findings from a pilot study, conclusions and next steps. Four constituent hypotheses, each of which refers to the performance of the Chairman and CEO, arise out of the pilot study: Hypothesis 1. The length of time that the Chairman and CEO of the acquiring firm have been together in their respective positions at the time of the acquisition will determine the success or otherwise of the outcome of the acquisition. Page | 38

Proceedings of the 2nd International Conference on Corporate Governance Garrow Hypothesis 2. The personal motivation of the CEO and Chairman will determine the M&A activity within the acquiring firm. Hypothesis 3. The stability of the acquirer’s strategy during the three year period prior to the...

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