Whistler Conference July Mergers and Acquisitions: A Hormone Effect? Mo Levi, Kai Li and Feng Zhang Sauder School of Business, UBC

Whistler Conference July Motivation Terrence Burnham ran a non-repeated ultimatum game where one of a pair of players can offer $5 or $25 of a total of $40 to the other player. Both must agree on division to receive anything Terrence Burnham ran a non-repeated ultimatum game where one of a pair of players can offer $5 or $25 of a total of $40 to the other player. Both must agree on division to receive anything Players’ mouths swabbed for testosterone. Players’ mouths swabbed for testosterone. Those offering $5 and those rejecting it overwhelmingly those with high testosterone Those offering $5 and those rejecting it overwhelmingly those with high testosterone Research question: Does testosterone play a role in M&A process? Specifically, does it relate to non-cooperation? Research question: Does testosterone play a role in M&A process? Specifically, does it relate to non-cooperation? We can’t go back and test participants, and even if we could their levels would have changed We can’t go back and test participants, and even if we could their levels would have changed However, we do have proxies for testosterone: However, we do have proxies for testosterone: For men, closely related to age, declining rapidly after mid fortiesFor men, closely related to age, declining rapidly after mid forties Gender: women have 2% or less than menGender: women have 2% or less than men What would we expect for younger vs. older men? (Gender effect in a separate paper.) What would we expect for younger vs. older men? (Gender effect in a separate paper.)

Whistler Conference July Hormone/Age Implications Young (high testosterone) bidder CEOs less likely to see need to offer necessary (higher) amount to target CEO, whether target is young or old  ceteris paribus, more withdrawals of young bidder CEO M&A attempts Young (high testosterone) bidder CEOs less likely to see need to offer necessary (higher) amount to target CEO, whether target is young or old  ceteris paribus, more withdrawals of young bidder CEO M&A attempts Young target CEOs less likely to accept initial offers leading to bidder CEOs, young and old, resorting to tender offers  ceteris paribus, more tender offers with young target CEOs M&A attempts Young target CEOs less likely to accept initial offers leading to bidder CEOs, young and old, resorting to tender offers  ceteris paribus, more tender offers with young target CEOs M&A attempts Data: Data: All U.S. merger attempts with announcement dates between All U.S. merger attempts with announcement dates between Both acquirer and target are public firmsBoth acquirer and target are public firms Require the availability of RiskMetrics board data, and CRSP and Compustat dataRequire the availability of RiskMetrics board data, and CRSP and Compustat data Our final sample has 403 merger attemptsOur final sample has 403 merger attempts Both of above predictions supported Both of above predictions supported

Whistler Conference July

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6 Limitations What we have is an age effect, not a hormone effect. What we have is an age effect, not a hormone effect. Result could also relate to horizon: younger CEOs have more time to benefit. Result could also relate to horizon: younger CEOs have more time to benefit. However, bidder CEO horizon could work either way: failing to complete not good for short or long run However, bidder CEO horizon could work either way: failing to complete not good for short or long run Inability to complete M&As attributed to CEOs only. Inability to complete M&As attributed to CEOs only.