Deal or No Deal Hormones and Completion of Mergers and Acquisitions.pdf

Deal or No Deal: Hormones and Completion of Mergers and Acquisitions* Maurice Levi Sauder School of Business University of British Columbia 2053 Main Mall, Vancouver, BC V6T 1Z2 604.822.8260 maurice.levi@sauder.ubc.ca Kai Li Sauder School of Business University of British Columbia 2053 Main Mall, Vancouver, BC V6T 1Z2 604.822.8353 kai.li@sauder.ubc.ca Feng Zhang Sauder School of Business University of British Columbia 2053 Main Mall, Vancouver, BC V6T 1Z2 604.827.5294 feng.zhang@sauder.ubc.ca First version: November, 2008 This version: December, 2008 Abstract Testosterone, a hormone linked to aggression, has been shown to influence the outcome of the two-player ultimatum game. Specifically, high-testosterone players tend to reject low offers even though this is against their interest. As a result, neither player receives any reward. This paper investigates whether such a “testosterone effect” is present in mergers and acquisitions (MAs). The relevant “players” are the CEOs of bidder and target companies. Hormone levels are proxied by male CEO age, based on the evidence that testosterone diminishes after middle age. The outcomes of interest are bid withdrawal, unfriendly bids, and the use of a tender offer. We find that bid withdrawal is more likely if the bidder or target male CEO is young. Further, young target male CEOs increase the chance that negotiations become unfriendly and that acquisitions take the form of tender offers. These effects are present controlling for other plausible influences on offer completion and friendliness. Keywords: male CEO testosterone, male CEO age, mergers and acquisitions, bid withdrawal, unfriendly bids, tender offers. JEL classification: G34 * Levi and Li acknowledge the financial support from the Social Sciences and Humanities Research Council of Canada. We also acknowledge the financial support from the Certified Management