Management Optimism and Corporate Acquisitions: Evidence from Insider Trading
Posted: 20 Dec 1998
Date Written: March 1994
We examine the relation between managers' personal beliefs about their firm's prospects, decisions by managers to make acquisitions, and decisions by managers to resist takeover offers for their firms. Using insider-trading data, we analyze whether managers are willing to stake their own money in addition to the firm's on the firm's acquisition strategy. Acquiring firm managers generally increase purchases of their own firm's stock, but this optimism is concentrated in firms that are eventually targets of hostile bids themselves. This optimism is inconsistent with explanations of takeover resistance that rest on managerial entrenchment or non-value-maximizing behavior.
JEL Classification: G34
Suggested Citation: Suggested Citation