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The “winner's curse” (or, more precisely, failure to account for the winner's curse) was one of the first behavioral “anomalies” to be discussed in the literature. The idea dates back to 1971, and was first applied to the bidding for oil drilling rights (See Capen, Clapp, & Campbell, 1971). The winner's curse is the phenomenon of systematically upward-biased winning bids in an auction market. That is, the winning bid in an auction tends to be much higher than some objectively defined value of the good.² The basis of the anomaly is relatively simple. In an auction with a large number of buyers, each possessing imperfect information concerning the value of the auctioned good, there will be a spread of estimated values. If buyers possess rational expectations, we will expect roughly half (assuming a symmetric distribution of estimates) of the bidders to overestimate the value of the good, and roughly half to underestimate its true value. If buyers naively bid their estimated value of the good, the winning bid will equal the most extremely over-valued estimate. Thus, the winning bid will not only be an overestimate of the good's true value, but it will be the most extreme overestimate made by any bidder. Hence, while on average an individual's bid may equal the actual value of the auctioned good, the winning bid will most likely be a severe overestimate of the good's value. For this reason, bidders who naively bid their estimated value at an auction will tend to regret winning.

The volume of acquisitions involving privately held targets has far surpassed that of publicly traded firms in recent years; yet, surprisingly little research has examined private target acquisitions. By analyzing the unique features of the market for private targets, we compare the potential for value creation and value capture in private and public target acquisitions. We argue that the corporate context of private targets does not provide the same opportunities for curbing agency costs and sharing intangible resources than the context of public targets, which reduces the value creation potential for the buyer. On the other hand, private targets have lower bargaining power vis-à-vis acquirers because of higher failures in the market for corporate control of private firms and liquidity discount, which increases the value creation potential for the buyer. The net value creation potential of acquiring private targets, therefore, depends on the relative importance of their agency costs, resource sharing opportunities, and bargaining power.

Cross-border mergers and acquisitions are now the fundamental mechanisms of globalization and considered as prime vehicles for business engagement across the countries through the foreign direct investment route. Significant amounts of foreign funds are crossing the country borders for acquisitions with the objectives of earning super normal returns. But realizing super normal returns from foreign acquisitions are far more difficult than that of foreign greenfield projects or domestic M&As or greenfield projects. The super normal profit itself is “synergy” which is the main driving force for any M&A including the cross-border one. Even though foreign policies of individual countries affect cross-border M&A decisions, corporate and market-driven financial numbers significantly influence the synergy estimation. Synergy should bring in all round greater efficiency and value addition to all stakeholders. But if the cross-border deal is not financially crafted properly, it may fall flat causing more distress to the acquirer compared to domestic acquisition. The theory of synergy is well developed which mostly applies to the domestic M&As. But due to inherent differences between cross-border and domestic M&As, the same synergy theory may not apply equally to the cross-border ones. Therefore, a different connotation of synergy is propounded in this work for cross-border M&As, which can be a corollary to the conventional theory of synergy. This alternative theory of synergy aims at helping the companies in developing their own financial strategies before making their strategic decisions for cross-border M&A deals.

This chapter studies the negative signals associated with nonpromotion. I first show theoretically that, when workers' productivity rises little with additional years on the same job level, the negative signal associated with nonpromotion leads to wage decreases. On the other hand, when additional job-level tenure leads to a sizable increase in productivity, workers' wages increase. I then test my model's predictions using the personnel records from a large US firm from 1970–1988. I find a clear hump-shaped wage-job-tenure profile for workers who stay at the same job level, which supports my model's prediction.

There exists a tremendous number of studies in strategy and management journals concerning contracting issues between private firms. Those studies are usually grounded in competing theoretical frameworks such as transaction cost economics, the resource-based view of the firm, incentive and agency theories and few others. However, very few studies, especially in those reviews (this is also true to a lesser extent in economic journals), are concerned with the issue of contracting between private firm and government. This is particularly surprising since existing theoretical frameworks qualified to tackle contracting strategies between private firms can also provide insights into issues related to contracting with government.

Mergers & acquisitions (M&A) are an important element of any company's growth plan. However, the actual performance of most M&A activity fails to live up to the expectations of the acquirers. The psychological biases that affect decision-making have been posited as a source of this disappointing performance. The broad strokes in which these biases have been offered up as explanation for M&A failure don't offer much insight into the specific causes, and therefore the actions business leaders can take to mitigate their impact. We review a 4-step M&A process, identify the different biases that affect the different stages, and then offer practical debiasing techniques targeted at that particular stage of the decision-making process. This targeted debiasing can help business leaders find practical solutions to this vexing problem. Finally, we review two biases that motivate decision makers to avoid pursuing M&A deals at all – to the detriment of achieving their growth targets.

This chapter studies the consequences of firm delayering on wages and the wage distribution inside firms. I consider a market-based tournament model with asymmetric information to endogenize firms’ delayering decisions. My model predicts that when the CEO becomes more productive, firms grow in size. When the CEO becomes sufficiently productive, firms delayer. After delayering, wages at all levels rise and the wage gap between the CEO and the laborers widens. These predictions capture the dynamic process of firms’ structure and size changes and match a set of empirical findings in recent studies that are not well explained by existing theories.

This chapter develops a decision-making framework to analyze important dimensions of mergers and acquisitions. Using a PLS approach, we show that strategic deals’ performance – measured by means of synergy realization, relative performance (compared to the competition), and absolute performance – is determined by three dimensions: strategic logic, organizational behavior, as well as finance. We find that the following significant variables, which stem from each of these dimensions, should be taken into account to ensure a successful deal: market similarities, market complementarities, operational similarities, operational complementarities, market power, purchasing power, acquisition experience, relative size, and due diligence.

Special purpose acquisition companies (SPACs) are created by a group of specialists to pool funds for financing future acquisitions within a specified time limit. SPACs are basically “shell” companies with no operations and business, assets or liabilities but they acquire the status of public corporations through initial public offerings (IPOs). The SPAC founders use the IPO funds to acquire a potential target. They are generally found to be successful to close an mergers & acquisitions (M&A) deal but they may not bother to ensure perpetual success of the acquired entity for a long time. In many countries, “shell” companies are characterized as the “bad boys” of the corporate world but they can be used for long-lasting successful M&As due to their inherent strengths, if they play the role of protagonists and “good guys” as SPACs. This chapter examines how SPACs can be used as special vehicles to ensure worthy and successful acquisitions to create sustainable corporations.

In this essay, I draw on the chapters by Fisher et al., Keller and Tian, and Zundel et al. that deal with the role of paradox in the context of jazz, linguistics, mathematics and poetry respectively to reflect on the nature of paradox, also considering examples from my own and other research. I argue specifically, that in everyday language, the notion of paradox is used mostly to refer not so much to persistent tensions between interdependent elements, but to describe an outcome as irony where action intended to achieve one goal actually results in its opposite or in something contrary to it. I suggest that while there may be a relation between the formal definition of paradox in the academic literature and the everyday understanding of paradox as irony, this has not been fully elucidated and would deserve further analysis and research. Doing so might perhaps bring back some of the feeling of discomfort and intractability that the notion of paradox naturally inspires, acting as a possible counterpoint to the optimism of both-and.