Abstract

Prior research on mergers and acquisitions (M&As) has substantially advanced our understanding of how isolated acquirer- and deal-specific factors affect abnormal stock returns. However, investors are likely to perceive and evaluate M&As holistically—that is, as complex configurations (i.e., gestalts) of characteristics, rather than as a list of independent factors. And, yet, extant M&A literature has not addressed why and how configurations of factors elicit positive or negative reactions. Overlooking the interdependent nature of factors known to influence acquisition success has limited our understanding of both M&As and investor judgment. Taking an inductive approach to addressing this important issue, the present study relies on fuzzy set methodology. Our results provide compelling evidence that investor perceptions of M&A announcements are not only configurational in nature but also characterized by equifinality (or the presence of multiple paths to success) and asymmetric causality (i.e., configurations that represent bad deals are not simply a mirror image of good deals, but differ fundamentally). By constructing a typology of "good" and "bad" deals as perceived by market participants, we develop a mid-range theory of M&A stock market performance. As such, this study offers novel theoretical and empirical insights to scholars as well as implications for practitioners.