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Mergers, Executive Risk Reduction, and Stockholder Wealth

Published online by Cambridge University Press:  06 April 2009

Wilbur Lewellen ,
Claudio Loderer  and
Ahron Rosenfeld
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Abstract

Among the possible consequences of agency problems between corporate owners and managers is a tendency by managers to make investment decisions for their firms that are deliberately aimed at reducing firm risk, as a means to control managers’ personal wealth risk. The literature has suggested that such behavior may occur to the detriment of shareholder wealth, and that mergers may be a particular class of investment decisions for which the behavior would be observable. We test these hypotheses empirically, but find no evidence from our merger sample that risk reduction for the acquiring firm is the typical outcome nor that, when it occurs, it is differentially costly for shareholders.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989 , pp. 459 - 472
Copyright
Copyright © School of Business Administration, University of Washington 1989

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