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Searching for managerial opportunism faint traces in French diversifying acquisitions

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  • Frédéric Perdreau

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    (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes I - Université de Caen)

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    Abstract

    We are looking for traces of managerial opportunism in french diversifyingacquisitions. Indeed, following various theories, diversification is seeking by managers.Furthermore, recent empiric evidences show that corporate diversification is valuedestructive for shareholders. Using classical OLS methodology with diversification,management ownership and performance variables, we find some evidence of managerialopportunism. But classical methodology presents two shortages. First, it supposed a uniquesense of causality. In particular, firm diversification is supposed to impact firmperformance without considering the inverse relationship (from performance todiversification). This one-way analysis can create biases in the estimated results. Second,this OLS methodology doesn't permit to take simultaneously the relationship between ourvariables. Noticing that this classical methodology is not well adapted to the problem, wesubmit our data to a system of simultaneous equations. Using this system, according to usbetter adapted, the faint traces of managerial opportunism vanishes. This is the case inparticular because the negative impact of diversification on performance disappears whenwe consider a non recursive relation between the variables. We derive others surprisingresults from our simultaneaous equations framework. Management stake in the equity caninfluence or be influenced by the performance depending on wether the performance ismeasured at the firm or at the operation (acquisition) level. Together, these results suggestthat we have to be cautious when searching for managerial opportunism in sample andstatistical studies. If manager opportunist inclination can be suspected in this kind ofstudies, it has to be distinguished from manager opportunist behavior which is far moredifficult to exhibit.

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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00010010.

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    Date of creation: 2002
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    Publication status: Published - Presented, the IESE European M&As, Corporate Restructuring and Consolidation Issues symposium, Mars 2002, Barcelone, Espagne., 2002, Spain
    Handle: RePEc:hal:journl:halshs-00010010

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00010010/en/
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    Keywords: managerial opportunism; acquisition; corporate diversification; agence; performance;

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    1. Owen Lamont & Christopher Polk, 2000. "Does Diversification Destroy Value? Evidence From Industry Shocks," NBER Working Papers 7803, National Bureau of Economic Research, Inc.
    2. Raghuram Rajan & Henri Servaes & Luigi Zingales, . "The Cost of Diversity: The Diversification Discount and Inefficient Investment," CRSP working papers 357, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    3. Nancy L. Rose & Andrea Shepard, 1997. "Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 489-514, Autumn.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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