New research about M&A advisors and “debiasing” strategies
The qualitative study “Falling Prey to Bias? The Influence of Advisors on the Manifestation of Cognitive Biases in the Pre-M&A Phase of Organizations”, published in the journal Group & Organization Management, co-authored by Julia Aschbacher and David P. Kroon, reveals that in the pre-M&A phase, cognitive biases arise within acquiring and acquired firms. Yet, hired M&A advisors are also prone to effort-saving techniques and subconscious biases, which may be reflected in the client’s M&A decision-making process.
Authors further find that cognitive biases stem from the contractual client–advisor relationship that elicits time pressure, standardization, and emotionality—circumstances that favour employing effort-saving techniques. These biases lead to complex decisions based on the selective collection, framing and evaluation of data, overestimating one’s rationality, ability and deal likelihood, the illusion of control, and one-sided views. Such a biased evaluation of the information induces the selection of a non-optimal target or acquirer or forces a deal that should not be made in the first place. Thus, these cognitive biases can be seen as a source of consequent M&A failure.
Find the full text of the study here.