Abstract:
The acquisition is a widespread growth strategy among modern businesses, and
firms often acquire other firms at substantial premiums over market values. This
study aims to investigate whether the level of acquisition premiums is affected by
the acquiring firm’s desperation for growth, triggered by low organic growth or high
acquisition dependence. This study follows the deductive approach while adopting
the archival research strategy. The study consists of 23 acquisition transactions
among publicly listed companies in the Colombo Stock Exchange (CSE) between
2009 and 2019. Secondary data are collected using published reports of listed
companies, the CSE, and the Securities and Exchange Commission (SEC). The study
employs quantitative analysis techniques such as correlation analysis and multiple
regression analysis with the help of IBM SPSS software. The study reveals that firms
desperate for growth overpay for acquisitions. Hence, findings indicate higher
acquisition premiums will be paid by acquirers with a low relative organic growth or
high acquisition dependence. The study adds empirical evidence on the impact of
firm growth on acquisition premiums in a developing country context where almost
all prior studies have attempted to provide some evidence in relation to developed
countries. Given the contextual differences of developed and developing countries,
the findings of this study offer a better understanding of how a firm’s desperation for
growth leads to the seemingly irrational strategic action of overpaying for the
targeted company.
