The DOI matches its Crossref record; 18 of the 18 references it cites were found in a registry or an index.
Risk Reduction as a Managerial Motive for Conglomerate Mergers
Abstract
A conglomerate merger generally leads, through the diversification effect, to reduced risk for the combined entity. As is well known, in perfect capital markets such risk reduction will not be beneficial to stockholders, since they can achieve on their own the preferred degree of risk in their "homemade" portfolios. What, then, is the motive for the widespread and persisting phenomenon of conglomerate mergers? In this study a "managerial" motive for conglomerate merger is advanced and tested. Specifically, managers, as opposed to investors, are hypothesized to engage in conglomerate mergers to decrease their largely undiversifiable "employment risk" (i.e., risk of losing job, professional reputation, etc.). Such risk-reduction activities are considered here as managerial perquisites in the context of the agency cost model. This hypothesis about conglomerate merger motivation is empirically examined in two different tests and found to be consistent with the data.
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Cites
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Moral Hazard and Observability
Holmstrom, B. (1979) · The Bell Journal of Economics · doi:10.2307/3003320 · Cited by 8,311
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The option pricing model and the risk factor of stock
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Cited by
Agency Theory: An Assessment and Review
Eisenhardt, K. M. (1989) · The Academy of Management Review · doi:10.5465/amr.1989.4279003 · Cited by 13,338
Who makes acquisitions? CEO overconfidence and the market's reaction☆
MALMENDIER, U., & TATE, G. (2008) · Journal of Financial Economics · doi:10.1016/j.jfineco.2007.07.002 · Cited by 2,754
Corporate Governance and Acquirer Returns
MASULIS, R. W., WANG, C., & XIE, F. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01259.x · Cited by 1,772
Lev, B. (1989) · Journal of Accounting Research · doi:10.2307/2491070 · Cited by 1,120
Self-citationGlobal Diversification, Industrial Diversification, and Firm Value
Denis, D. J., Denis, D. K., & Yost, K. (2002) · The Journal of Finance · doi:10.1111/0022-1082.00485 · Cited by 1,049
Metadata
- Authors
- Amihud, Y., & Lev, B.
- Venue
- The Bell Journal of Economics
- Publisher
- JSTOR
- Published
- 1981
- Volume
- 12
- Issue
- 2
- Pages
- 605
- ISSN
- 0361-915X (ISSN-L)
- OpenAlex
- W1531341052
- Cited by
- 2,772
- References
- 18
- FWCI
- 29.11
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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