Strategic Risk-Taking and Value Creation: Evidence from the Market for Corporate Control

51 Pages Posted: 22 Jan 2012 Last revised: 15 Dec 2016

See all articles by Shantaram P. Hegde

Shantaram P. Hegde

University of Connecticut- Finance Department

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Date Written: December 15, 2016

Abstract

In a large sample of U.S. M&As over 1990-2007 we find that value is created when risk-takers absorb risk-avoiding target firms, but it is destroyed when bidders with a conservative investment policy takeover risk-taking target firms. This value effect is particularly pronounced when bidders are relatively better governed. Further, while bidder’s poor governance leads to lower levels of internal and external risk-taking, the risk propensity of target firms is not compromised by their governance. Thus, our study offers new direct evidence that strategic risk transfer is an important channel of value creation in M&As.

Keywords: Corporate Governance, Market for Corporate Control, Acquisitions, Takeovers, Agency Problems, Event Study, Risk-Taking and Abnormal Returns

JEL Classification: G34, D21, D23

Suggested Citation

Hegde, Shantaram P. and Mishra, Dev R., Strategic Risk-Taking and Value Creation: Evidence from the Market for Corporate Control (December 15, 2016). Available at SSRN: https://ssrn.com/abstract=1986089 or http://dx.doi.org/10.2139/ssrn.1986089

Shantaram P. Hegde

University of Connecticut- Finance Department ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

Dev R. Mishra (Contact Author)

University of Saskatchewan - Edwards School of Business ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)

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