corporate acquisitions motivation and consequence dr keitha.pdfVIP

Corporate Acquisitions: Motivation and Consequence Dr Keitha Dunstan WORKING PAPER NO. 1999-005 School of Accountancy Queensland University of Technology AUSTRALIA k.dunstan@qut.edu.au ABSTRACT Corporations commonly seek growth and/or investment opportunities through the acquisition of other companies. In times of increasing international scrutiny of the corporate governance practices of corporations, managers and directors of companies may well be dismayed that a large body of empirical research contends that corporate acquisitions may not be motivated by efficiency gains and are generally not wealth enhancing for the shareholders of acquiring companies. The purpose of the paper is to critically review the literature within financial economics and strategic management that investigates the factors motivating corporate acquisitions and the determinants of the financial gains (losses) associated with corporate acquisitions. This appeal to the literature reveals that, while there are numerous competing theories for the motivation for corporate acquisitions, the generation of efficiencies due to synergistic gains provides the most widely accepted explanation. It is also a conclusion of this review that it is not defensible to claim that market forces would permit the prevalence of inefficient corporate acquisitions in the long-term. 1 INTRODUCTION Corporations commonly seek growth and/or investment opportunities through the acquisition of other companies. In times of increasing international scrutiny of the corporate governance practices of corporations, managers and directors of companies may well be dismayed that a large body of empirical research contends that corporate acquisitions may not be motivated by efficiency gains and are generally not wealth enhancing for the shareholders of acquiring companies. The purpose of the paper is to critically review