Diseconomies of managing in acquisitions: Evidence from civil lawsuits

J. Myles Shaver, John M. Mezias

Research output: Contribution to journalArticle

21 Scopus citations

Abstract

The difficulties of managing and coordinating operations as firms expand are expected to increase disproportionately with firm size. If firms face such diseconomies of managing, then acquisitions should make the combined entity more difficult to manage than the two entities operating independently. To document the existence of diseconomies of managing in acquisitions, we examine the change in civil lawsuit judgments involving acquired firms pre- and postacquisition. Civil lawsuit judgments can capture breakdowns in management oversight that cause firms to take actions that a prudent firm would not take or fail to take actions that a prudent firm would take. We find that acquired entities face a significant increase in lawsuit judgments postacquisition. We describe why our findings provide evidence of diseconomies of managing and highlight why managerial diseconomies should be an important consideration when managing or examining acquisition strategies.

Original languageEnglish (US)
Pages (from-to)206-222
Number of pages17
JournalOrganization Science
Volume20
Issue number1
DOIs
StatePublished - Jan 1 2009

Keywords

  • Acquisitions
  • Civil lawsuits
  • Diseconomies of managing
  • Legal liability

ASJC Scopus subject areas

  • Strategy and Management
  • Organizational Behavior and Human Resource Management
  • Management of Technology and Innovation

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