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http://ssrn.com/abstract=1572425
 
 

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Acquisitions as Lotteries: Do Managerial Gambling Attitudes Influence Takeover Decisions?


Christoph Schneider


University of Mannheim - Department of Business Administration and Finance; University of Michigan, Stephen M. Ross School of Business

Oliver G. Spalt


Tilburg University - Department of Finance

September 9, 2013


Abstract:     
This paper studies the impact of managerial gambling attitudes on corporate acquisitions. We construct a new lottery index that measures the attractiveness of a potential target as a gamble and show that higher index values are associated with lower announcement returns for the acquirer. This effect is substantial and acquirers lose on average 73bp or about $63 million in the three days around the announcement for a one standard deviation increase in the lottery index. Combined announcement returns (synergies) are lower and the takeover likelihood increases with the index. The effects are stronger when CEOs are more powerful and when their gambling propensity is high. These results are the first evidence to suggest that managerial gambling attitudes are a major determinant of takeover decisions. An important implication of our study is that a CEO preference for long shots can lead to large inefficiencies in resource allocation.

Number of Pages in PDF File: 40

Keywords: Behavioral Corporate Finance, Mergers and Acquisitions, Gambling

JEL Classification: G34, G14, G39

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Date posted: April 1, 2010 ; Last revised: September 10, 2013

Suggested Citation

Schneider, Christoph and Spalt, Oliver G., Acquisitions as Lotteries: Do Managerial Gambling Attitudes Influence Takeover Decisions? (September 9, 2013). Available at SSRN: http://ssrn.com/abstract=1572425 or http://dx.doi.org/10.2139/ssrn.1572425

Contact Information

Christoph Schneider
University of Mannheim - Department of Business Administration and Finance ( email )
D-68131 Mannheim
Germany
(+49) 621 181 1949 (Phone)
(+49) 621 181 1980 (Fax)
HOME PAGE: http://cf.bwl.uni-mannheim.de
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
Oliver G. Spalt (Contact Author)
Tilburg University - Department of Finance ( email )
Department of Finance
Tilburg University
Tilburg, 5000 LE
Netherlands
+31 13 466 3545 (Phone)
HOME PAGE: http://www.oliverspalt.com
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