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Uncertainty avoidance, risk tolerance and corporate takeover decisions

Author

Listed:
  • Frijns, Bart
  • Gilbert, Aaron
  • Lehnert, Thorsten
  • Tourani-Rad, Alireza

Abstract

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.

Suggested Citation

  • Frijns, Bart & Gilbert, Aaron & Lehnert, Thorsten & Tourani-Rad, Alireza, 2013. "Uncertainty avoidance, risk tolerance and corporate takeover decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2457-2471.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2457-2471
    DOI: 10.1016/j.jbankfin.2013.02.010
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    References listed on IDEAS

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    Cited by:

    1. Bremer, Marc & Hoshi, Akio & Inoue, Kotaro & Suzuki, Kazunori, 2017. "Uncertainty avoiding behavior and cross-border acquisitions in the Asia-Pacific region," Japan and the World Economy, Elsevier, vol. 41(C), pages 99-112.
    2. repec:dau:papers:123456789/13099 is not listed on IDEAS
    3. repec:eee:intfin:v:48:y:2017:i:c:p:47-60 is not listed on IDEAS
    4. Papanastasopoulos, Georgios A. & Tsiritakis, Emmanuel, 2015. "The accrual anomaly in Europe: The role of accounting distortions," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 176-185.
    5. repec:bla:acctfi:v:57:y:2017:i::p:3-43 is not listed on IDEAS
    6. Koerniadi, Hardjo & Krishnamurti, Chandrasekhar & Tourani-Rad, Alireza, 2015. "Cross-border mergers and acquisitions and default risk," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 336-348.
    7. Frijns, Bart & Dodd, Olga & Cimerova, Helena, 2016. "The impact of cultural diversity in corporate boards on firm performance," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 521-541.
    8. Marc BREMER & HOSHI Akio & INOUE Kotaro & SUZUKI Kazunori, 2015. "Uncertainty Avoiding Behavior and Cross-border Acquisitions," Discussion papers 15033, Research Institute of Economy, Trade and Industry (RIETI).
    9. Bradrania, Reza & Westerholm, P. Joakim & Yeoh, James, 2016. "Do CEOs who trade shares adopt more aggressive corporate investment strategies?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 349-366.
    10. repec:bla:irvfin:v:17:y:2017:i:1:p:107-133 is not listed on IDEAS
    11. French, Joseph J. & French, Atchaporn & Li, Wei-Xuan, 2015. "The relationship among cultural dimensions, education expenditure, and PISA performance," International Journal of Educational Development, Elsevier, vol. 42(C), pages 25-34.
    12. repec:eee:jbfina:v:88:y:2018:i:c:p:52-62 is not listed on IDEAS
    13. Emre Yýldýrým & Yusuf Arslan & Merve Türkmen Barutçu, 2016. "The Role Of Uncertainty Avoidance And Indulgence As Cultural Dimensions On Online Shopping Expenditure," Eurasian Business & Economics Journal, Eurasian Academy Of Sciences, vol. 4(4), pages 42-51, January.
    14. Lievenbrück, Martin & Schmid, Thomas, 2014. "Why do firms (not) hedge? — Novel evidence on cultural influence," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 92-106.
    15. repec:dau:papers:123456789/13772 is not listed on IDEAS
    16. repec:eee:intfin:v:52:y:2018:i:c:p:64-89 is not listed on IDEAS
    17. Javakhadze, David & Ferris, Stephen P. & Sen, Nilanjan, 2014. "An international analysis of dividend smoothing," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 200-220.
    18. repec:vrs:ijomae:v:53:y:2017:i:3:p:48-66:n:4 is not listed on IDEAS

    More about this item

    Keywords

    Financial decision making; Uncertainty avoidance; Risk tolerance; Synergies; Takeovers;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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