Testosterone Damages Corporate M&A

The work behind the paper concludes that “young CEOs with more of the steroidal hormone in their system are more likely to initiate, scrap or resist mergers and acquisitions.”

“We find a strong association between male CEOs being young and their withdrawal rate of initiated mergers and acquisition,” says Professor Maurice Levi of the University of British Columbia’s Sauder School of Business , whose research draws on an established correlation between relative youth and increased levels of testosterone. He added “For instance, young CEOs, who have higher levels of testosterone, tend to reject offers even when this is against their interest.”

The study shows that younger CEOs operating with more testosterone in their systems are 20 percent more likely to withdraw a merger or acquisition bid than their older counterparts. When companies run by young male CEOs are targeted for mergers or acquisitions, there is a2 percent greater chance the CEOs will resist, pushing the bidder to pursue a hostile takeover that bypasses company leadership.

The researchers analyzed 350 merger and acquisition bids in the United States between 1997 and 2007, using a securities database from Thomson SDC

The problem with the research is that the sample is modest as are some of the percentages. The analysis of 350 deals over a decade-long period is not much of a sample. A 2% difference in behavior between two groups is very modest. It represents only seven people when measured against the sample size.  Moreover, there is no definition of what is meant by a “young CEO.”  Testosterone starts to decline at around age 30 with some men sustaining a 50 percent drop by age 50, a typical age for a “young CEO.”  Low testosterone is characterized by mental fatigue and excessive sleepiness, traits that would not be helpful in a corporate leader.  There is no indication that researchers did medical tests to find out who has too much of the male hormone.

The study also does not take into account the role of boards of directors in M&A activity. Most public companies have boards that would be deeply involved in the decisions related to large financial or equity-based transactions.

Sometimes, the professorial enthusiasm about a piece of research overwhelms the judgment of those who conduct it. Not all young CEOs are testosterone-fueled. Some are just aggressive in deal-making because it ends up producing a better result.

Douglas A. McIntyre