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The vicarious wisdom of crowds: toward a behavioral perspective on investor reactions to acquisition announcements
Author(s) -
Schijven Mario,
Hitt Michael A.
Publication year - 2012
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.1984
Subject(s) - behavioral economics , perspective (graphical) , crowds , investor relations , information asymmetry , perception , set (abstract data type) , face (sociological concept) , economics , event (particle physics) , financial economics , psychology , marketing , finance , business , strategic management , sociology , computer science , social science , physics , computer security , quantum mechanics , artificial intelligence , neuroscience , programming language
Abstract Although event‐study methodology is invaluable to strategic management research, we argue that the traditional financial economic rationale on which it is based has led scholars to assume away the behavioral mechanisms underlying investor reactions. Building on behavioral theory from management, psychology, and economics, we set out to develop a behavioral perspective on investor reactions to acquisition announcements—one that relaxes the assumption of investors making objective, rational‐deductive calculations. Given the information asymmetry they face, we theorize that investors (1) infer management's perception of an acquisition's synergistic potential from the premium it pays, and (2) draw on additional public information to assess the reliability of that perception. Using a multi‐industry sample of acquisitions by North American firms, we find considerable support for our behavioral framework. Copyright © 2012 John Wiley & Sons, Ltd.