Abstract
This paper offers a new explanation of value-reducing mergers and
stock market driven takeovers by introducing recent research on aspiration
levels and individual decision making under risk. If market valuation
constitutes an aspiration level for managers, we show that managers may
be tempted to seek riskier mergers in order to meet shareholder optimism.
Such merger seeking behavior increases in bidder overvaluation and can
also favor acquisitions when the expected value of takeovers is lower than
alternative investments. The paper provides support for several empirical
findings and complements existing market-timing models as its predictions
are decoupled from equity offers and are independent from the means of
payment.
stock market driven takeovers by introducing recent research on aspiration
levels and individual decision making under risk. If market valuation
constitutes an aspiration level for managers, we show that managers may
be tempted to seek riskier mergers in order to meet shareholder optimism.
Such merger seeking behavior increases in bidder overvaluation and can
also favor acquisitions when the expected value of takeovers is lower than
alternative investments. The paper provides support for several empirical
findings and complements existing market-timing models as its predictions
are decoupled from equity offers and are independent from the means of
payment.
| Original language | English |
|---|---|
| Place of Publication | Utrecht |
| Publisher | UU USE Tjalling C. Koopmans Research Institute |
| Number of pages | 22 |
| Publication status | Published - Feb 2008 |
Publication series
| Name | Discussion Paper Series / Tjalling C. Koopmans Research Institute |
|---|---|
| No. | 06 |
| Volume | 08 |
| ISSN (Electronic) | 2666-8238 |
Keywords
- aspiration level
- mergers and acquisitions
- market-driven takeovers
- overvaluation