Study: When It Comes to Acquisitions, Prestigious Firms Aren't Picky

Chris Gaetano
Published Date:
Apr 24, 2017
Big Fish

While an acquisition can be a fraught process requiring a great deal of discretion, a recent study has found that companies with high public prestige are a little more cavalier with their acquisitions, being more inclined to pick up all kinds of companies, even ones in completely unrelated markets, according to the Harvard Business Review. The paper, published in the Strategic Management Journal, used Fortune's Most Admired Companies rankings to create a list of 75 high-prestige firms. The researchers found that these firms made approximately twice as many acquisitions in an average year than other comparable firms. Further, those acquisitions were more likely to be unrelated to the company's business. There's also little uniformity in the size of the deals: high-prestige firms made acquisitions ranging from $100 million to billions of dollars. 

The researchers theorize that highly prestigious firms face greater pressures for rapid growth, and so make acquisitions to keep up with expectations. The researchers note that this strategy isn't optimal, however, given that "investors bid down high-reputation firms' stock more than other firms' in response to acquisition announcements, suggesting that investors are skeptical of how high-reputation firms maintain their reputations."

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