Resource title

Do Entrepreneurs Make Predictable Mistakes? - Evidence from Corporate Divestitures

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Resource description

We assess the argument that corporate acquisitions are driven mainly by agencyconsiderations. This argument holds that certain kinds of mergers—mergers between firms inunrelated industries, mergers between firms with large differences in price-earnings ratios, andmergers financed with stock swaps, for example—will consistently fail, eventually being reversedin a divestiture. Appealing to Mises’s theory of entrepreneurship, we argue instead thatdivestitures of previously acquired assets usually result from experimentation and learning,healthy attributes of a market economy. We then describe empirical evidence that the long-termsuccess or failure of corporate acquisitions cannot, in general, be predicted by measures ofagency conflicts. We also show that mistaken acquisitions are more likely under certain circumstances,namely during periods of intense, industry-specific regulatory activity. This is consistentwith the view, expressed repeatedly in the Austrian literature, that entrepreneurial error is associatedwith government intervention—in particular, with government ownership of property andinterference with the price system.JEL Classifications: D84, G34, G38Key words: acquisitions, divestitures, entrepreneurship, market process, experimentation

Resource author

Peter G. Klein, Sandra K. Klein

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Resource language

eng

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application/pdf

Resource resource URL

http://hdl.handle.net/10398/6905

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