The management of an acquiring firm is often too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm's market capitalization.This is known as the _____ and is the reason why acquisitions fail.
A) bandwagon effect
B) Fisher effect
C) hubris hypothesis
D) international Fisher effect
E) learning effect

Question

Quizplus · Accepted Answer

The hubris hypothesis refers to the management of an acquiring firm being overly confident in their ability to create value through an acquisition, leading them to pay a significant premium over the target firm's market capitalization. This overconfidence often leads to failed acquisitions. The other options are not directly related to this phenomenon.

The Management of an Acquiring Firm Is Often Too Optimistic