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Systemic crises change how investors evaluate acquisitions

Published in the Journal of Management Studies, this study reveals how systemic crises, like the Great Financial Crisis of 2008-09, fundamentally alter the cognitive frameworks (or 'recipes') investors use to assess acquisition announcements.

How crises redefine investment strategies

Publicly listed firms often engage in acquisitions. This growth strategy enables firms to expand to new markets, gain additional market share, enhance operational efficiency, and engage in innovation.  A key consideration of firms engaging in acquisitions is how their investors react when they announce acquisitions, given that investor response to such announcements directly affects firm market performance. 

The article delves into the impact of systemic crises on how investors respond to acquisition announcements made by publicly listed firms. Specifically, before a crisis, investors rely on specific “recipes” that convey deal attractiveness, acquirer competence, and acquirer governance. These recipes are, however, disrupted during a crisis, when investors become more explorative and try out a wide range of new “recipes.” Post-crisis, investors do not simply return to the “old” normal but rather shift towards a “new normal,” more focused than during the crisis but still more explorative than before the crisis. In particular, investors place a greater emphasis on good governance (e.g., board independence). 

“This research provides valuable insights into the adaptability of investor strategies in the face of economic turmoil,” explains Roxana Turturea, one of the study's co-authors. “We’ve observed a distinct shift in how investors evaluate potential acquisitions, moving towards more exploratory approaches during crises and more safeguards-focused approaches post-crises.”

Key research findings

  • Generally, investors evaluate acquisitions holistically and apply a compensatory logic.
  • Investors significantly change their evaluation criteria for acquisitions during systemic crises, shifting from traditional 'recipes' to more explorative strategies (openness to more recipes) and risk-averse (e.g., preference for domestic deals). Therefore, investors are looking for “crisis-proof” deals.
  • After a crisis, investors shift towards a “new normal.” Thus, they are less explorative than during the crisis (but more so than before the crisis), more risk-tolerant than during the crisis (e.g., openness towards international deals), and more interested in safeguards enabled by good governance.

“The post-crisis landscape reveals a shift towards a “new normal”  that entails a stronger emphasis on governance safeguards. This indicates not just a temporary adjustment but a lasting transformation in investment evaluation practices,” Turturea adds, emphasizing the lasting impact of systemic crises on investment strategies.

The future of investment strategy research

The study uncovers a shift in investor strategies due to systemic crises, moving from traditional approaches to more dynamic, crisis-resilient frameworks. This evolution reflects investors' responses to changing economic landscapes, emphasizing the need for future research to explore how these adaptive strategies are developed and how past crisis lessons are incorporated into new investment decisions.

Meet the researchers

  • Jiachen Yang: NEOMA Business School
  • Michel W. Lander:  Rotterdam School of Management, Erasmus University
  • Roxana Turturea: Stockholm School of Economics, House of Innovation
  • Pursey Heugens: Rotterdam School of Management, Erasmus University
House of Innovation Strategy Article Journal Publication Research