Two Essays on Managerial Learning in Corporate Acquisitions

Chapter One examines how the exemption of short sale uptick tests due to the Regulation SHO pilot program affects managers' decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the pilot program, managers of pilot firms, whose stocks are less subject to short selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers' sensitivity prior to nor post the program. These results suggest that, despite managers' repugnance toward short sellers, they learn more from stock price changes when short sellers are less impeded. Chapter Two examines whether the corporate cultural similarity between a target and an acquiring firm influences the acquiring managers' decision to abandon a corporate acquisition attempt conditional on the acquiring firm's stock price reaction at the announcement of the deal. The findings suggest that higher cultural similarity decreases the propensity of acquiring managers to listen to the stock market. We use the inclusion in the annual list of the 100 Best Corporate Citizens as an exogenous shock to establish a causal link. We interpret the findings to imply that acquiring managers are subject to a confirmatory bias that leads them to give an overly optimistic valuation to target firms that share similar corporate culture. Therefore, cultural similarity between a target and an acquiring firm could have detrimental effects on the acquiring firm.