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Averaging bias in firm acquisition processes
Högskolan i Gävle, Akademin för utbildning och ekonomi, Avdelningen för ekonomi, Företagsekonomi.ORCID-id: 0000-0002-5043-6289
Högskolan i Gävle, Akademin för utbildning och ekonomi, Avdelningen för ekonomi, Nationalekonomi.
Högskolan i Gävle, Akademin för utbildning och ekonomi, Avdelningen för ekonomi.ORCID-id: 0000-0002-7584-2275
2022 (engelsk)Inngår i: Journal of Behavioral and Experimental Economics, ISSN 2214-8043, E-ISSN 2214-8051, Vol. 96, artikkel-id 101809Artikkel i tidsskrift (Fagfellevurdert) Published
Abstract [en]

When a firm acquires 100% of the shares in another firm and finances this acquisition with available funds, the debt level and return on equity of the two firms in combination goes up (under certain conditions). In three experiments, we empirically demonstrate that individuals intuitively think these variables become lower after the acquisition, contrary to what is actually the case. The findings stress the role of psychological processes in business valuation and accounting and are consistent with an averaging account of judgment under uncertainty. On this view, people's judgments of objects in combination are biased toward the average rather than the sum of the objects’ individual characteristics. The experiments also show that informing the participants of the accurate evaluations removes the bias. The third experiment reinforced these results by replicating the same pattern with a sample of “high-accounting literacy” participants who all reported formal university training in accounting. One takeaway of the study is that, in acquisition settings, investors potentially could base their assessment of firm value on false premises which in turn (at least in the short run) leads to a higher level of asset mispricing and a less efficient capital market.

sted, utgiver, år, opplag, sider
Elsevier , 2022. Vol. 96, artikkel-id 101809
Emneord [en]
firm acquisition, debt level, return on equity, averaging bias, cognitive biases
HSV kategori
Forskningsprogram
Intelligent industri
Identifikatorer
URN: urn:nbn:se:hig:diva-37188DOI: 10.1016/j.socec.2021.101809ISI: 000731074200002Scopus ID: 2-s2.0-85120784810OAI: oai:DiVA.org:hig-37188DiVA, id: diva2:1604481
Tilgjengelig fra: 2021-10-20 Laget: 2021-10-20 Sist oppdatert: 2022-01-04bibliografisk kontrollert

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Hartwig, FredrikLandström, Mats

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