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Envy‐Motivated Merger Waves
Author(s) -
Doukas John A.,
Zhang Wenjia
Publication year - 2016
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12045
Subject(s) - bidding , executive compensation , context (archaeology) , mergers and acquisitions , compensation (psychology) , value (mathematics) , microeconomics , economics , business , database transaction , transaction cost , marketing , social psychology , incentive , psychology , finance , statistics , paleontology , computer science , programming language , biology , mathematics
Abstract This study examines whether top managerial executive envy plays an important role in merger waves. Since managerial benefits, especially compensation, always increase with firm size, the envy hypothesis conjectures that top executive officers rush into acquisitions due to their envious psychology once other executives initiate them. Six empirical predictions of the envy hypothesis concerning – bidder (target) size, transaction size, value creation for bidders, compensation increases for top managers, likelihood of bidding, as well as total gains (synergies) from mergers – are tested in the context of the banking industry and find that merger waves are motivated by envy‐pay.