Searching for managerial opportunism faint traces in French diversifying acquisitions
Résumé
We are looking for traces of managerial opportunism in french diversifying
acquisitions. Indeed, following various theories, diversification is seeking by managers.
Furthermore, recent empiric evidences show that corporate diversification is value
destructive for shareholders. Using classical OLS methodology with diversification,
management ownership and performance variables, we find some evidence of managerial
opportunism. But classical methodology presents two shortages. First, it supposed a unique
sense of causality. In particular, firm diversification is supposed to impact firm
performance without considering the inverse relationship (from performance to
diversification). This one-way analysis can create biases in the estimated results. Second,
this OLS methodology doesn't permit to take simultaneously the relationship between our
variables. Noticing that this classical methodology is not well adapted to the problem, we
submit our data to a system of simultaneous equations. Using this system, according to us
better adapted, the faint traces of managerial opportunism vanishes. This is the case in
particular because the negative impact of diversification on performance disappears when
we consider a non recursive relation between the variables. We derive others surprising
results from our simultaneaous equations framework. Management stake in the equity can
influence or be influenced by the performance depending on wether the performance is
measured at the firm or at the operation (acquisition) level. Together, these results suggest
that we have to be cautious when searching for managerial opportunism in sample and
statistical studies. If manager opportunist inclination can be suspected in this kind of
studies, it has to be distinguished from manager opportunist behavior which is far more
difficult to exhibit.
acquisitions. Indeed, following various theories, diversification is seeking by managers.
Furthermore, recent empiric evidences show that corporate diversification is value
destructive for shareholders. Using classical OLS methodology with diversification,
management ownership and performance variables, we find some evidence of managerial
opportunism. But classical methodology presents two shortages. First, it supposed a unique
sense of causality. In particular, firm diversification is supposed to impact firm
performance without considering the inverse relationship (from performance to
diversification). This one-way analysis can create biases in the estimated results. Second,
this OLS methodology doesn't permit to take simultaneously the relationship between our
variables. Noticing that this classical methodology is not well adapted to the problem, we
submit our data to a system of simultaneous equations. Using this system, according to us
better adapted, the faint traces of managerial opportunism vanishes. This is the case in
particular because the negative impact of diversification on performance disappears when
we consider a non recursive relation between the variables. We derive others surprising
results from our simultaneaous equations framework. Management stake in the equity can
influence or be influenced by the performance depending on wether the performance is
measured at the firm or at the operation (acquisition) level. Together, these results suggest
that we have to be cautious when searching for managerial opportunism in sample and
statistical studies. If manager opportunist inclination can be suspected in this kind of
studies, it has to be distinguished from manager opportunist behavior which is far more
difficult to exhibit.
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