Reference : Uncertainty avoidance, risk tolerance and corporate takeover decisions
Scientific journals : Article
Business & economic sciences : Finance
Uncertainty avoidance, risk tolerance and corporate takeover decisions
Frijns, Bart [Auckland University of Technology, New Zealand]
Gilbert, Aaron [Auckland University of Technology, New Zealand]
Tourani Rad, Ali Reza [Auckland University of Technology, New Zealand]
Lehnert, Thorsten mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Journal of Banking and Finance
Elsevier Science
Yes (verified by ORBilu)
[en] Financial Decision Making ; Uncertainty Avoidance ; Risk Tolerance ; Synergies ; Takeovers
[en] In this paper, we examine the role of national culture in corporate takeover decisions, by arguing that managerial risk tolerance (a combination of risk aversion and risk perception), at the national level, is a cultural trait and affects the expected net synergies CEOs require. We propose a theoretical framework that links CEO risk tolerance to the expected net synergies. We empirically show that CEOs of firms located in countries with lower levels of risk tolerance, measured by Hofstede’s (1980, 2001) uncertainty avoidance score, require higher premiums on takeovers, and show that uncertainty avoidance plays a greater role in relatively large takeovers. Additional testing reveals that CEOs from high uncertainty avoiding nations engage less in cross-border/cross-industry takeovers, suggesting that uncertainty avoidance captures more the CEO’s risk perception than his/her risk aversion.

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