Higher Testosterone May Stimulate Hostile Takeovers

Younger chief executives with high testosterone levels may be more likely to try a hostile takeover—and to get burned in the attempt, Canadian researchers said Wednesday.

They found age was clearly linked with aggressive takeover behavior, and did a careful but indirect analysis to see if testosterone might be involved.

It likely is, said Kai Li and colleagues at the Sauder School of Business at the University of British Columbia.

"Young male CEOs appear to be combative: they are 4 percent more likely to be acquisitive and, having initiated an acquisition, they are over 20 percent more likely to withdraw an offer," Li's team wrote in the September issue of Management Science.

"Furthermore, a young target male CEO is 2 percent more likely to force a bidder to resort to a tender offer. We argue that this combative nature is a result of testosterone levels that are higher in young males."

Could experience be a factor, or rational thinking? "Our main thesis is hormones in a person's body may influence corporate decisions," Li said in a telephone interview. "Personality, gender, age all matter."

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The best way to test that would be to monitor CEOs in the midst of a takeover battle, but it was not practical, Li said.

"But there are studies that already demonstrate a strong relationship between male age and testosterone," she said.

The hormone starts to decline in men at around age 45.

So Li's team looked at a Thomson Reuters database of 2,458 acquisition bids made by U.S. public for U.S. public targets between 1997 and 2007.

Researchers looked at the characteristics of the CEOs involved—including how long they had been at the helms of their respective companies, in case the differences came down to simple experience.

There was a clear pattern—younger CEOs were 4 percent more likely to initiate a bid than CEOs over the age of 45.

"In a more marked finding, male CEOs' relative youth increases their likelihood of withdrawing a merger/acquisition bid by as much as 20 percent," Li's team wrote.

Younger men with presumably higher testosterone would reject low offers, even if the rejection meant losing any chance of an offer, the researchers said.

Testosterone appears to provide the best explanation.

"The connections we find are present even after controlling for other plausible influences on M&A outcomes," they wrote.

In controlled laboratory tests, young men with high testosterone often will make a no-win offer, research has shown.

"This opens a new chapter in corporate finance research," Li said.

Do women CEOs behave the same way?

"Unfortunately in the corporate world...only about 1 percent of the CEOs are female, so there just aren't enough data points for us to draw any conclusions," Li said.

Last year, researchers at Northwestern University and the University of Chicago found that female MBA students with higher levels of testosterone were far more likely than those with lower levels to choose finance careers such as investment banking that can be lucrative but also risky.