Are CEOs unable to learn? This surprising question deserves to be raised in the light of the declining pattern of cumulative abnormal returns observed in M&A programs. This paper shows that this pattern is the expected ex post empirical evidence for rational risk averse CEOs. Our theoretical...

Knowledge gleaned from previous acquisitions may confer valuation expertise and other benefits. But numerous acquisitions also entail costs, due to problems of incorporating diverse units into an ever larger firm. Such benefits and costs are not directly observable from outside the firm. This...