November 09, 2008

Dumb idea: letting bigness become a proxy for best

Alex Edmans from Wharton and Jack Bao of MIT …

“…examined nearly 30 years of returns to shareholders from mergers and acquisitions, and found a strong negative correlation between a bank's market share and the returns of its acquirer clients. In other words, the more market share a bank has, the less value it is likely to deliver.”

Their perceptive report explains why otherwise smart companies keep patronizing places that don’t deliver what they were looking for. It also sheds light on why so many merger deals destroy, not create, value.


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