Abstract
In this paper, we find that the decisions to retain asset sale proceeds are positively related to the likelihood of subsequent acquisitions. We demonstrate that retention decisions destroy the wealth of shareholders. First, we document negative market reactions towards a retention decision, and the effect is more pronounced when the decision is followed by an unexpected acquisition. Second, we show that subsequent acquisitions reduce the wealth of shareholders, especially when the acquisitions are unexpected by the market. Third, retention sellers' long-run performance declines when they pursue an acquisition following the sale of their assets. Altogether, we provide novel evidence suggesting that retention sellers tend to reallocate proceeds to specific acquisitions that are detrimental to shareholders' wealth.
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