Motives for Acquisitions in the UK

This paper investigates the motives for acquisitions in the UK. Standard event study methodology is inadequate to distinguish between different motives for acquisitions in any sample. Berkovitch and Narayanan (1993) propose a different methodology to distinguish between competing motives in any sample. This methodology analyses the relationship between the target gain and total gain to distinguish acquisitions driven by efficiency from those driven by agency motives. To differentiate managerial hubris from agency problems, the relationship between target gain and bidder gain is also analysed. The results show that efficiency is the primary motive for acquisitions exhibiting positive total gains. However, there is evidence of managerial hubris in the sample. In acquisitions were total gains are negative, agency problems are the primary motive.