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Market Optimism and Merger Waves |
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| Authors: | Klaus Gugler Dennis C. Mueller Michael Weichselbaumer B. Burcin Yurtoglu |
| Affiliation: | 1. Department of Economics, WU (Vienna University of Economics and Business), , Vienna, Austria;2. Department of Economics, University of Vienna, , Vienna, Austria;3. Institute of Management Science, Vienna University of Technology, , Vienna, Austria;4. WHU – Otto Beisheim School of Management, , Vallendar, Germany |
| Abstract: | We argue that stock and bond market booms and merger waves are both driven by increases in optimism in financial markets and discuss two behavioral hypotheses, the managerial discretion and overvaluation hypotheses that claim that merger waves are driven by market optimism. Empirical support for the managerial theory is provided by evidence that the amounts of assets acquired increase as optimism in financial markets increases and that the returns to acquiring companies are inversely related to market optimism at the time of mergers. Our measures of market optimism also explain managerial choices of finance for mergers. Copyright © 2012 John Wiley & Sons, Ltd. |
| Keywords: | Financial market optimism merger waves managerial discretion overvaluation |