Darryl Laws
Motivation. I want to step back from my daily private equity fund manager demands and take a pause to understand what motivates buyer’s and seller’s interactions in mergers and acquisitions transactions and the impact of their decisions. In the 1980’s I worked on hostile take-overs for the Belzberg brothers when The Art of War, Sun Tsu (496 BC), “Know thy self, know thy enemy. The opportunity of defeating our enemy is provided by the enemy themselves” was the bible for tactical strategy and decision theory. Thus, conscious and subconscious decision-making processes are in my view are important topics that few researchers have considered how they impact upon mergers and acquisitions premium prices. Works by Cyert and March (1963) gave birth to two major alternatives perspectives: rationality and bounded rationality decision making. Eisenhardt (1992) probed further into political, power and the garbage can model (Cohen , 1972) for decision-making, claiming that factors such as: greed, fear, bias and overconfidence were not considered in their research. These cognitive behavior factors give rise to irrational behavior, a behavioral extreme that has only been examined through experiments in game theory. Game theory provides an insight into strategic human behavior interaction, rational and irrational, during a merger or acquisition negotiation transactions with significant economic outcomes. Contemporary game theory has two forms: non-co-operative game theory (Nash, 1951) and co-operative game theory (Shapley 1977). My appetite for understanding irrational behavior’s impact has led me to formulate the following questions:
Research questions:
Do irrational behaviors (independent variables) of the seller explain the impact(s) upon the purchase / sale price premium (dependent variable) paid in a merger & acquisition transaction for a private company? (Quantitative question).
Does CEO hubris, or CEO overconfidence and or CEO biases (independent variables) precipitate into negotiation interactions (dependent variable) in mergers and acquisitions transactions and affect the outcome? (Quantitative question)
What game theory tactical strategies can be employed by a buyer to strategically countermand a seller’s irrational human behavior in M&A transactions of private companies? (Qualitative question).
Survey Design. It is useful to consider three aspects of questionnaire design: 1) the available question types, 2) the flow of the questionnaire and 3) the overall look and feel (Couper, 2008; Dillman et al., 2014; Tourangeau et al., 2013).
The following is a chronological breakdown of the cognitive sequence that I went through in making judgement calls in the design of my web-based survey instrument.
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