Deal or No Deal: Hormones and the Mergers and Acquisitions Game

46 Pages Posted: 22 Mar 2009 Last revised: 17 Sep 2010

Maurice D. Levi

University of British Columbia (UBC) - Sauder School of Business

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Feng Zhang

University of Utah - Department of Finance

Date Written: September 2010

Abstract

Young male CEOs appear to be combative: they are 4% more likely to be acquisitive and, having initiated an acquisition, they are over 20% more likely to withdraw an offer. Furthermore, a young target male CEO is 2% more likely to force a bidder to resort to a tender offer. We argue that this combative nature is a result of testosterone levels that are higher in young males. Testosterone, a hormone associated with male dominance seeking, has been shown to influence prospects for a cooperative outcome of the ultimatum game. Specifically, high-testosterone responders tend to reject low offers even though this is against their interest. It has been argued that this is consistent with a low offer being seen as dominance seeking. The acts of attempting or resisting an acquisition can be viewed as striving to achieve dominance. We argue that the evidence reported in this paper is consistent with the presence of a significant hormone effect in mergers and acquisitions.

Keywords: mergers and acquisitions, male dominance seeking, CEO testosterone, bid initiation, bid withdrawal, tender offers

JEL Classification: G34

Suggested Citation

Levi, Maurice D. and Li, Kai and Zhang, Feng, Deal or No Deal: Hormones and the Mergers and Acquisitions Game (September 2010). Available at SSRN: https://ssrn.com/abstract=1364870 or http://dx.doi.org/10.2139/ssrn.1364870

Maurice David Levi

University of British Columbia (UBC) - Sauder School of Business ( email )

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Vancouver BC V6T 1Z2
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604-822-8260 (Phone)
604-822-8521 (Fax)

Kai Li

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Feng Zhang (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112-9303
United States

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