Firms’ Managerial Ability as a Driving Force for Engaging in Mergers and Acquisitions

This study examines the relationship between acquiring firms’ managerial ability and their decisions on mergers and acquisitions (M&As). Using M&A data for a sample of US firms from 2000 to 2012, the authors hypothesize and find that when the acquiring firm’s managerial ability is greater, the probability of engaging in M&As and the likelihood of committing serial M&As are both higher. The authors also find that firms with high managerial ability are more likely to enter into horizontal same-industry acquisitions. These results show that the acquiring firm’s managerial ability is a major determinant of M&A activities, and that superior managers are more inclined to achieve growth through external acquisitions, particularly horizontal M&As.

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