Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322752 
Year of Publication: 
2008
Series/Report no.: 
Discussion Papers Series No. 08-06
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
This paper offers a new explanation of value-reducing mergers and stock market driven takeovers by introducing recent research on aspiration levels and individual decision making under risk. If market valuation constitutes an aspiration level for managers, we show that managers may be tempted to seek riskier mergers in order to meet shareholder optimism. Such merger seeking behavior increases in bidder overvaluation and can also favor acquisitions when the expected value of takeovers is lower than alternative investments. The paper provides support for several empirical findings and complements existing market-timing models as its predictions are decoupled from equity offers and are independent from the means of payment.
Subjects: 
aspiration level
mergers and acquisitions
market-driven takeovers
overvaluation
Document Type: 
Working Paper

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