Prior Firm Performance and Unrelated M&A: The Moderating Effect of CEO Risk Hobby

초록

This study examines how firms’ under-performance relative to industry-based aspiration levels influences their likelihood of engaging in unrelated mergers and acquisitions (M&A), and how this relationship is moderated by CEOs’ risk-taking tendencies, as reflected in their personal hobbies. Drawing on prospect theory, we argue that firms below aspiration levels are more likely to pursue risk-seeking strategies, particularly under risk-tolerant CEOs. Using 2,245 firm-year observations from S&P 500 firms (2014–2023), we employ Heckman two-step models and logistic regression to test our hypotheses. Results show that performance shortfalls significantly increase the likelihood of unrelated M&As, and this effect is amplified when CEOs engage in high-risk hobbies. These findings extend behavioral strategy research by linking aspiration-level comparisons and executive leisure activities to strategic risk-taking. Practically, the study suggests that observable behavioral cues, such as CEO hobbies, offer valuable signals for boards and investors evaluating firms’ strategic posture under performance pressure.

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