At-risk acquirers: survival strategy or last-ditch effort?

Abstract

Managers of at-risk firms have incentives to prolong the life of the company or to extract personal wealth prior to firm liquidation, and they can pursue a number of activities in order to achieve these goals. Prior studies have investigated the consequences of managers becoming targets for acquisition. In this study, we examine the consequences of at-risk firms doing the opposite: buying other firms (i.e., becoming at-risk acquirers). We find two positive consequences of becoming at-risk acquirers. At-risk acquirers (1) avoid delisting due to poor performance and (2) leave at-risk status in the year following the acquisition. We also find that these benefits are only temporary and come at a cost. Specifically, at-risk acquirers are less likely to become subsequent targets, and they quickly return to at-risk status. These results indicate that the decision of the manager of an at-risk firm to become an at-risk acquirer buys the manager more time but does not help the firm.