Searching for Faint Traces of Managerial Opportunism in French Diversifying Acquisitions
31 Pages Posted: 28 Mar 2001
We are looking for traces of managerial opportunism in french diversifying acquisitions. Indeed, following various theories, diversification is seeking by managers. Furthermore, recent empiric evidences show that corporate diversification is value destructive for shareholders. Using classical OLS methodology with diversification, management ownership and performance variables, we find some evidence of managerial opportunism. But classical methodology presents two shortages. First, it supposed a unique sense of causality. In particular, firm diversification is supposed to impact firm performance without considering the inverse relationship (from performance to diversification). This one-way analysis can create biases in the estimated results. Second, this OLS methodology doesn?t permit to take simultaneously the relationship between our variables. Noticing that this classical methodology is not well adapted to the problem, we submit our data to a system of simultaneous equations. Using this system, according to us better adapted, the faint traces of managerial opportunism vanishes. This is the case in particular because the negative impact of diversification on performance disappears when we consider a non recursive relation between the variables. We derive others surprising results from our simultaneaous equations framework. Management stake in the equity can influence or be influenced by the performance depending on wether the performance is measured at the firm or at the operation (acquisition) level. Together, these results suggest that we have to be cautious when searching for managerial opportunism in sample and statistical studies. If manager opportunist inclination can be suspected in this kind of studies, it has to be distinguished from manager opportunist behavior which is far more difficult to exhibit.
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