TY - JOUR
T1 - Homophily and Merger Dynamics
AU - Bonini, Stefano
AU - Vaidya, Meghana
N1 - Publisher Copyright:
© 2023 British Academy of Management.
PY - 2024/7
Y1 - 2024/7
N2 - We propose a novel multi-factor metric of homophily between the CEOs of the acquirer and target firms as a causal determinant of mergers and acquisitions (M&As). We find strong evidence that higher homophily among the two CEOs increases the likelihood of M&A deal initiation and completion. When homophily is high, deals are more likely to be paid in cash, exhibit significantly larger long-term value creation and are less subject to ex-ante overpricing as measured by ex-post goodwill write-offs. These effects stem from similarity between CEOs creating trust, reducing information asymmetry and facilitating effective communication. Our approach resolves prior conflicting results on the effect of homophily on large corporate decisions and strongly indicates the need for a multi-dimensional estimation of homophily to obtain conclusive results.
AB - We propose a novel multi-factor metric of homophily between the CEOs of the acquirer and target firms as a causal determinant of mergers and acquisitions (M&As). We find strong evidence that higher homophily among the two CEOs increases the likelihood of M&A deal initiation and completion. When homophily is high, deals are more likely to be paid in cash, exhibit significantly larger long-term value creation and are less subject to ex-ante overpricing as measured by ex-post goodwill write-offs. These effects stem from similarity between CEOs creating trust, reducing information asymmetry and facilitating effective communication. Our approach resolves prior conflicting results on the effect of homophily on large corporate decisions and strongly indicates the need for a multi-dimensional estimation of homophily to obtain conclusive results.
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U2 - 10.1111/1467-8551.12764
DO - 10.1111/1467-8551.12764
M3 - Article
AN - SCOPUS:85173931000
SN - 1045-3172
VL - 35
SP - 1367
EP - 1391
JO - British Journal of Management
JF - British Journal of Management
IS - 3
ER -