Serial Acquisitions, Overconfidence and Ceo’s Empire Building

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3/ The overall significance examination:

Since the probab(F-Statistic) is very close to 0 (0.000000….) we can conclude that our model is overall significant at the level of 10%. That is to say, the selection of the explanatory variables is overall significant.

4/ Verify the different ideas suggested by the literature regarding the determinants of multiple acquisitions.

5/ What is the main weakness of the use of OLS to estimate this model? Why?

According to the estimated equation, the estimated number of acquisition is continuous. However, in reality, the number of acquisitions are not continuous, but nonnegative integers. In addition, there exists explanatory variables lead to negative dependant variable, which is meaningfulness in this case. Hence the OLS model can’t perfectly interpret the outcome.

6/ Use the Poisson regression methodology to estimate the model presented and evaluate its explanatory power and its overall significance.

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We can see from the poisson regression model that the Prob(LR statistic) is 0 means that model is statistically significant; the adjusted R square is 7.79%, meaning that the explanatory variables could explain 7.79% of the number of acquisitions.

7/ Compare the results of question (6) to those of questions (2) and (3)

By comparing the result of questions (6) to those of question (2) and (3), we found out that the P-value is the same equals to 0, meaning that both models indicate an overall significance; however, the adjusted R square is smaller from the Poisson regression model than from OLS model, meaning that the explanatory variables explain less the dependent variables than in the OLS model, which meet the expectations as poison regression model exclude the negative dependent varibales.

8/ Test the hypothesis of Overdispersion for the model determining the number of serial Acquisitions

9/ Following your answer to question (8), can you suggest another regression model to better determine the reasons of serial acquisitions?

10/ Write a final conclusion clearly presenting the results of your estimations and stating the reasons motivating the serial acquisition decision. How do you related your findings to the literature regarding Agency Costs between CEOs and shareholders, and CEO’s Empire building rationale?

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