Managerial Risk-Taking Incentives and Merger Decisions

76 Pages Posted: 16 Mar 2013 Last revised: 29 Mar 2017

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Beibei Shen

Shanghai University of Finance and Economics

Date Written: March 28, 2017

Abstract

We provide evidence concerning the effect of managerial risk-taking incentives on merger and acquisition (M&A) decisions and outcomes for different types of mergers: vertical, horizontal, and diversifying. Using chief executive officer (CEO) relative inside leverage to proxy for the incentives of risk-averse managers, we find that CEOs with higher inside leverage are more likely to engage in vertical mergers, and those mergers generate lower announcement returns for shareholders. This effect of CEO relative inside leverage on returns for shareholders in vertical acquisitions is more pronounced when the acquirer has a higher degree of informational opacity, weak governance, and excess cash.

Keywords: Managerial risk-taking incentives; Vertical integration; Shareholder wealth

JEL Classification: G34, G32, J33, M12

Suggested Citation

Lin, Chen and Officer, Micah S. and Shen, Beibei, Managerial Risk-Taking Incentives and Merger Decisions (March 28, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2233826 or http://dx.doi.org/10.2139/ssrn.2233826

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Beibei Shen (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Register to save articles to
your library

Register

Paper statistics

Downloads
447
Abstract Views
2,178
rank
64,902
PlumX Metrics