As I noted the other day, there has been an upsurge in not only mergers and acquisitions but in hostile bids. There are many possible reasons – rising confidence following the financial crisis, companies being cash-rich, etc – but here is an alternative one: testosterone.
We are familiar with dominant chief executives who want to get their own way, but an academic study has found that young CEOs with high levels of testosterone are not only more likely to launch bids but more likely either to withdraw a bid in anger or to launch a hostile tender offer.
The researchers at the University of British Columbia did not actually test the CEOs in their study for levels of testosterone (they used age as a proxy) and my first reaction was to wonder if they were constructing a good story.
However, having read the study, they did consider alternative explanations, such as older CEOs being more likely to bid an acceptable amount for a target and found no evidence for them. Higher testosterone in younger chief executives remained the most likely explanation.
As they point out, M&A activity is thus similar to the “ultimatum game” – a psychological test in which two people are asked to split $40. The higher the level of testosterone in a male participant, the more likely he is to reject a low offer from his companion, even if it is all he can get.
As they put it:
“CEOs are clearly in dominant positions by virtue of their leading corporate roles: both the bidder and the target CEOs must have sought dominance to be at the pinnacle of their corporations. Ths makes them an interesting population to study hormones and dominance.”
You can say that again. Come on, you male Fortune 500 and FTSE 100 chief executives, if you are all man enough to take a hormone test, we can settle this thing definitively.
You can listen to one of the authors of the study talking about it here and a copy of the study is available here.
