Asymmetric Learning in Successive Mergers and Acquisitions: Overconfidence and Loss Aversion

Abstract

Using data from 865 acquisition events launched by Chinese A-share listed companies between 2013 and 2019, we divide the dataset into two subsamples: first-time merger successes and first-time merger failures. For firms that experienced initial merger success, we find the outcomes of their subsequent merger activities to be negative, as managerial overconfidence hindered the assimilation of valuable insights from the initial successful experience. Conversely, in the case of firms that encountered initial merger failure, managerial loss aversion stimulated a learning process that led to improved performance in subsequent merger endeavors. Asymmetric learning effects are observed to significantly impact the merger outcomes of serial acquirers. Further analysis reveals that managerial age plays a role in optimizing this asymmetric learning effect.