Market Optimism and Merger Waves
Article first published online: 28 FEB 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 33, Issue 3, pages 159–175, April 2012
How to Cite
Gugler, K., Mueller, D. C., Weichselbaumer, M. and Burcin Yurtoglu, B. (2012), Market Optimism and Merger Waves. Manage. Decis. Econ., 33: 159–175. doi: 10.1002/mde.2542
- Issue published online: 13 MAR 2012
- Article first published online: 28 FEB 2012
- Manuscript Accepted: 21 JAN 2012
- Manuscript Received: 15 SEP 2011
- Financial market optimism;
- merger waves;
- managerial discretion;
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.