Synergy, Managerialism or Hubris? An Empirical Examination of Motives for Foreign Acquisitions of U.S. Firms

This study examines the motives underlying foreign acquisitions of U.S. firms, estimates the extent of value creation associated with such acquisitions, and examines how total gains are shared between acquiring firms and targets. We show that the synergy hypothesis is the predominant explanation for our sample of foreign acquisitions of U.S. firms. However, the hubris hypothesis coexists with the synergy hypothesis in explaining the acquisitions in our sample that are characterized by positive total gains. The evidence is also consistent with the managerialism hypothesis for the acquisitions in our sample with negative total gains. We show that the incidence of competition is associated with higher total gains, as well as higher gains to targets.