Aggregate manager sentiment and corporate merger and acquisition activities

Prior literature document that investor sentiment and behavioural biases of individual managers (e.g., overconfidence) have significant impacts on corporate mergers and acquisition (M&A) activities.
Nevertheless, researchers in psychology, sociology and behavioural finance fields also argue that sentiment is actually a social rather than individual bias where individuals make decisions following the aggregate sentiment of their affiliates. This thesis examines the impact of aggregate manager sentiment on three aspects of corporate M&A activities: market-level M&A activities, individual acquiring firm’s choice of M&A payment method and acquirers’ abnormal stock returns upon M&A announcements. Using monthly manager sentiment index of Jiang et al. (2019) as a measure of aggregate manager sentiment, first it finds that aggregate manager sentiment has significant positive impact on aggregate value of cash only financed M&A activities. This impact is short-lived in case of small and medium firms whereas it is long-lived in case of large firms. Next, it finds that aggregate manager sentiment has a significant positive (negative) relationship with the likelihood of using fully cash (fully stock) by individual acquiring firms in takeover deals. Additionally, the analysis finds that increased number of directors on acquiring firm’s board enhances whereas higher CEO age attenuates the impact of aggregate manager sentiment on such choices. Finally, it finds that stock market reacts negatively when acquiring firms announce M&A after a period of high aggregate manager sentiment and stock payment method enhances such negative reactions. The thesis contributes to the behavioural finance literature and M&A literature by showing that aggregate manager sentiment is an important determinant of M&A activities and announcement returns. It also contributes to the governance literature by documenting the roles of certain board and CEO characteristics in alternating the impact of aggregate manager sentiment on M&A payment decisions.