Quasi-Rationality in Action: A Study of Psychological Factors in Merger Decision-Making

Abstract

This article shows how recent behavioral and psychological literature is useful for understanding merger decision-making by conducting a psychologicallyoriented empirical study that reveals the presence ofpsychological motivations orfactors in mega-merger decision-making. The data set is the ten largest stockfor-stock mega-mergers for each of the last three years-the heyday of the megamergers. It first situates the article in an ongoing study of the mega-merger "wave" and presents the necessary behavioral and psychological background to the empirical study. It next describes the method of the study, which involves creating a "'grid" of psychological factors and applying it to public representations of decisions by the boards of the mergingfirms in the data set, in order to detect the presence of the factors in this decision-making. It then presents the results of the empirical study and offers a narrative explanation of them. To reinforce the shareholder value destruction in the mega-mergers, the article also provides evidence of value loss in the thirty mega-mergers. Finally, it discusses the implications of the empirical study for corporate and securities law relating to mega-merger decision-making. Here it finds that courts and policymakers accept a psychologically simplistic view of this decision-making by both boards of directors and shareholders. It also argues that both corporate law and federal securities laws require reform so that regulators and courts can address the influence of psychological factors in merger decision-making. The article concludes by offering examples ofpossible legal reform. I would take issue with the idea that most mergers end up being failures. I know there are studies from the 1970s and '80s that will tell you that But when I look at many companies today-particularly new-economy companies like Cisco and WorldCom-I have a hard time dismissing the strategic power of M&A.-Alex Mandl, Chairman and CEO of Teligent.** Professor, Brooklyn Law School. I thank Philip Lindenbaum for his research assistance, Jeffrey Rachlinski and Daniel Greenwood for valuable comments on an earlier draft Dean Joan Wexler for a summer stipend and one-semester sabbatical, and Larry Mitchell for his invitation to the Summer 2000 Sloan Program for the Study of Business in Society, sponsored by the George Washington University Law School, which inspired the article.

L'attrait psychologique des codes de « meilleures pratiques » en France

“…Cela s'applique potentiellement aux différents domaines de la vie économique et financière (comportement des investisseurs en bourse, politique d'investissement des dirigeants, etc.). Ainsi, dans un précédent article, Fanto (2001) propose une explication de la multiplication des méga-fusions, malgré le constat empirique d'un échec de la plupart d'entre elles. Dans ce contexte, l'explication proposée fait des facteurs psychologiques qui caractérisent les initiateurs des fusions la cause principale d'une appréciation positive de cette pratique.…”