Unpublished Paper
Bad Corporate Marriages: Waking Up in Bed the Morning After
Finance
Document Type
Article
Publication Date
6-9-2015
Disciplines
Abstract
This paper examines corporate risk taking behavior in the wake of unsuccessful merger activities. We find that relative to other firms, firms that made bad acquisitions take both more systematic risk and more idiosyncratic risk. Moreover, higher risk is associated with greater value destruction and stronger corporate governance. The increased risk can be traced to increased cash flow volatility, increased leverage, decreased asset liquidity, more investment in R&D, and more equity-based executive compensation. These findings are in line with the behavioral approach suggesting that in the domain of losses, decision makers generally become more tolerant of risk.
Citation Information
Ye Cai and Hersh Shefrin. "Bad Corporate Marriages: Waking Up in Bed the Morning After" (2015) Available at: http://works.bepress.com/ye_cai/1/
This is a working paper.