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Market Optimism and Merger Waves
Author(s) -
Gugler Klaus,
Mueller Dennis C.,
Weichselbaumer Michael,
Burcin Yurtoglu B.
Publication year - 2012
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2542
Subject(s) - optimism , stock market , economics , boom , empirical evidence , monetary economics , financial market , stock (firearms) , discretion , financial economics , finance , financial system , psychology , political science , mechanical engineering , social psychology , paleontology , philosophy , epistemology , horse , environmental engineering , law , engineering , biology
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.