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Once Bitten, Twice Shy: How Unconsummated Deals Affect Subsequent M&As

We examine how a bidder’s failure to consummate a deal affects its subsequent M&As. After experiencing unconsummated M&As, firms choose smaller targets than before, more likely hire advisors, hire more advisors, and more likely make cash bids. Effects are strongest for bids directly succeeding unconsummated deals, but tend to linger over time and with CEOs. Deal failure exogenous to the acquirer, used for identification, is not associated with the aforementioned effects. Results suggest that firms reduce risks of deal problems and failure to protect their reputation for assessing and consummating investments. Consistent with this interpretation, we find negative abnormal announcement returns when deal failure repeats.