Abstract

http://ssrn.com/abstract=1942968
 
 

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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

October 12, 2011

Paris December 2011 Finance Meeting EUROFIDAI - AFFI

Abstract:     
This paper analyzes takeover announcements for public US targets from 1987 to 2008. Consistent with the hypothesis that gambling attitudes matter for takeover decisions, both acquiror announcement returns and expected synergies are lower in acquisitions where the target's stock has characteristics similar to those of attractive gambles. Offer price premium and target announcement returns are higher in these deals. The effects are stronger in companies where managers are more entrenched, where the disciplining force of product market competition is lower, where recent acquiror performance has been poor, during economic downturns, for younger CEOs in the acquiring firm, and for acquirors headquartered in areas in which local gambling propensity is higher. Targets with lottery features are more likely to receive takeover bids and direct evidence from synergy disclosure data shows that the market reacts less favorably to higher synergy forecasts if they are issued in the context of a lottery acquisition. Overall, our results suggest that corporate acquisitions are influenced by managerial gambling attitudes and that value destruction for acquirors in gambling-related transactions is substantial.

Number of Pages in PDF File: 66

Keywords: Mergers and Acquisitions, Gambling, Managerial Biases

JEL Classification: G34, G14, G3

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Date posted: October 12, 2011  

Suggested Citation

Schneider, Christoph and Spalt, Oliver G., Acquisitions as Lotteries: Do Managerial Gambling Attitudes Influence Takeover Decisions? (October 12, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: http://ssrn.com/abstract=1942968 or http://dx.doi.org/10.2139/ssrn.1942968

Contact Information

Christoph Schneider (Contact Author)
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
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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