Foreign acquisitions and managerial discretion: evidence from U.S. MNCs

Abstract

Foreign acqusitions have been growing dramatically since the 1980s despite academic studies show that shareholders of acquirers do not have any significant gain in general Existing investigations, however, base their conclusions on stock price movements. In this paper, logistic regressions are performed to establish a direct link between foreign acqusitions and managerial discretion. The results show that foreign acquisitions of low-Q (Tobin's Q) firms are strongly influenced by managerial discretion. In addition, acqusitions of low-Q firms are conducted without consideration of the firm performance of the acquirers and change in the economic environment It is also found that foreign acqusitions of high-Q firms do not represent overinvestments.