Shareholders' Expectations, Aspiration Levels and Mergers

E. Diecidue, J. van de Ven, J., U. Weitzel (2012): "Shareholder optimism: Shareholders' Expectations, Aspiration Levels and Mergers" in McCarthy, K.J., Dolfsma, W. (eds.) "Understanding Mergers and Acquisitions in the 21st Century", Palgrave Macmillan, pp.148-164.

22 Pages Posted: 11 Mar 2008 Last revised: 12 Nov 2012

See all articles by Enrico Diecidue

Enrico Diecidue

INSEAD – Decision Sciences

Jeroen van de Ven

University of Amsterdam; Tinbergen Institute

Utz Weitzel

Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR

Date Written: February 18, 2008

Abstract

This paper offers an 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.

Keywords: aspiration level, mergers and acquisitions, market-driven takeovers, overvaluation

JEL Classification: G34, G12, G31

Suggested Citation

Diecidue, Enrico and van de Ven, Jeroen and Weitzel, Utz, Shareholders' Expectations, Aspiration Levels and Mergers (February 18, 2008). E. Diecidue, J. van de Ven, J., U. Weitzel (2012): "Shareholder optimism: Shareholders' Expectations, Aspiration Levels and Mergers" in McCarthy, K.J., Dolfsma, W. (eds.) "Understanding Mergers and Acquisitions in the 21st Century", Palgrave Macmillan, pp.148-164.. Available at SSRN: https://ssrn.com/abstract=1103482 or http://dx.doi.org/10.2139/ssrn.1103482

Enrico Diecidue

INSEAD – Decision Sciences ( email )

France

Jeroen Van de Ven

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Utz Weitzel (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Radboud University - Economics Department, IMR ( email )

Nijmegen, 6500 HK
Netherlands

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