Performance Feedback, Slack, and The Timing of Acquisitions

Investigating behavioral explanations for the timing of corporate acquisitions, we focus on the effects of performance relative to aspiration level, slack, and proximity to bankruptcy. We used event history modeling to explain the hazard of acquisitions among U.S. manufacturing firms from 1980 to 2000. Results indicate acquisition activity increases as performance rises among firms performing below aspirations, but falls among firms performing above aspirations. Slack has a positive relation with acquisitions, and financial distress inhibits acquisitions. We also found support for shifts in firms' focus of attention between survival, aspirations, and slack.