Tuesday, December 28, 2010

Deal or No Deal: Hormones and the Mergers and Acquisitions Game

Maurice LeviKai Li and Feng Zhang from University of British Columbia published an article in Management Science arguing that hormone levels of young male CEOs are influencing their business decisions. Young male CEOs appear to be combative: they are 4% more likely to be acquisitive and, having initiated an acquisition, they are over 20% more likely to withdraw an offer. Furthermore, a young target male CEO is 2% more likely to force a bidder to resort to a tender offer. The authors argue that this combative nature is a result of testosterone levels that are higher in young males. Testosterone, a hormone associated with male dominanceseeking, has been shown to influence prospects for a cooperative outcome of the ultimatum game. Specifically, high-testosterone responders tend to reject low offers even though this is against their interest. It has been argued that this is consistent with a low offer being seen as dominance seeking. The acts of attempting or resisting an acquisition can be viewed as striving to achieve dominance. Authors argue that the evidence reported in the paper is consistent with the presence of a significant hormone effect in mergers and acquisitions.o