Acquisitions as Lotteries: Do Managerial Gambling Attitudes Influence Takeover Decisions?
University of Mannheim - Department of Business Administration and Finance; The Stephen M. Ross School of Business at the University of Michigan
Oliver G. Spalt
Tilburg University - Department of Finance
April 30, 2013
This paper studies the impact of managerial gambling attitudes on corporate acquisitions. We show that bidder announcement returns and synergies decrease, and takeover probability increases in the expected idiosyncratic skewness and idiosyncratic volatility of a target firm's stock returns. Using an index that combines the two features we find that acquirers lose on average 53bp or about $46.3 million in the three days around the announcement for a one standard deviation increase in the index. 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 source of wealth destruction in takeovers.
Number of Pages in PDF File: 34
Keywords: Behavioral Corporate Finance, Mergers and Acquisitions, Gambling
JEL Classification: G34, G14, G39working papers series
Date posted: April 1, 2010 ; Last revised: April 30, 2013
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