Date of Award

5-1-2021

Language

English

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

College/School/Department

Department of Information Science

Content Description

1 online resource (iii, 123 pages) : color illustrations.

Dissertation/Thesis Chair

Shobha Chengalur-Smith

Committee Members

Luis Luna-Reyes, Matt Crayne

Keywords

Cognitive Bias, Decision Science, Duel Process Theory, Strategic Decsion Making, Consolidation and merger of corporations, Decision making, Selectivity (Psychology), Cognition, Decision Making, decision making, cognition

Subject Categories

Dance | Library and Information Science

Abstract

In this dissertation I look at the high failure rates of Mergers and Acquisitions (M&As) and why there has been no discernible change in outcomes over the last several decades. Although we have greater access to data, sophisticated business intelligence (BI) and data analytics (DA) tools, and work by industry professionals and academics to improve the process, high failure rates have persisted. I explore the possibility that the representativeness heuristic could play a role, and specifically, the possibility that prior probabilities are being ignored in M&A evaluations. I use a mixed methods approach to explore the hypothesis that decision makers will respond rationally to new information, demonstrating higher failure rates in M&As. First, I analyzed a large dataset with a two-way fixed effects model as a test of this hypothesis. I found that a major KPMG (1999) study that showed 83% failure rates across M&As had no statistically significant effect on future M&A evaluations. A notable exception was clients of KPMG, who showed a drop in M&As, as they were likely “alerted” to the issue. I then followed up with two survey studies to examine individual behavior in an M&A scenario where respondents were given a variety of factors to consider in their decision. The treatment was the only statistical information provided, which was failure rates for M&As. With a few exceptions, we again found no statistically significant differences between the control groups and the high failure rate groups. With these results, I conclude that the cognitive bias “insensitivity to prior probabilities” likely plays a role in M&A decision making. In the discussion section, I discuss other cognitive biases that also may contribute to high failure rates. I also discuss some work previously done on debiasing and the need for further scenario specific work to understand proper debiasing techniques.

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