The Right Frame of Mind for M&A: The Post-Merger Impact of Deal Frames on Target Management Behavior

36 Pages Posted: 25 Feb 2009

See all articles by Libby Weber

Libby Weber

University of Southern California - Management and Organization Department

Date Written: February 25, 2009

Abstract

Although M&A has been studied extensively, the impact of deal frames has not. Framing is particularly important in acquisitions with earnout clauses, performance-based payment. In these deals, compensation can be framed as total potential value (upfront and earnout payment) or as guaranteed compensation (upfront payment). This choice leads to the perception of the earnout as either a loss (total compensation frame) or a gain (guaranteed compensation frame). Prospect theory suggests these different views result in risk-seeking versus risk-averse behavior. Since different merger attributes favor one or the other, I examine when to use the total or guaranteed compensation deals frames.

Keywords: M&A, Prospect Theory, Framing, Capability

Suggested Citation

Weber, Libby, The Right Frame of Mind for M&A: The Post-Merger Impact of Deal Frames on Target Management Behavior (February 25, 2009). Atlanta Competitive Advantage Conference Paper. Available at SSRN: https://ssrn.com/abstract=1349209 or http://dx.doi.org/10.2139/ssrn.1349209

Libby Weber (Contact Author)

University of Southern California - Management and Organization Department ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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