Essays on Bidder Anchoring and Cultural Narratives in Mergers and Acquisitions

Abstract

This thesis investigates the behavioural and cultural influences on mergers and acquisitions. Prospect theory proposes that people rely on a reference point when making decisions under uncertainty. Chapter 3 applies this theory to M&As, using the bidder 52-week low as a proxy for loss perception. It shows that bidder managers are subject to reference-dependence bias. Bidders trading closer to their 52-week lows are more likely to pay with stocks and offer higher premiums. These deals are associated with weaker market reactions and poorer long-term performance, suggesting that reference-dependent bidders tend to overpay in pursuit of perceived recovery. The findings contribute to behavioural finance by offering direct evidence of how managerial decisions in M&As are shaped by prior stock performance.

However, not all M&A behaviour can be explained by firm-level reference points. Chapter 4 shifts the focus to the cross-border setting and introduces a cultural perspective. Drawing from narrative economics, a new folklore-based proxy is developed to capture national attitudes toward risk. Using a large sample of 3,663 cross-border M&As, it is found that firms from countries whose traditional stories valorise success in uncertainty are more active in pursuing CBMAs, pay higher premiums, and engage in larger deals. These results suggest that cultural narratives about risk-taking, embedded over generations, influence corporate expansion strategies across borders. The folklore proxy outperforms conventional cultural measures, offering a new lens through which to understand international deal behaviour.

Together, the two chapters highlight distinct but complementary behavioural forces behind M&A decisions. Reference point effects help explain domestic bidder behaviour, where managerial loss framing leads to aggressive but costly deals. Cultural narratives explain cross-border variation, where collective beliefs about risk shape a firm’s willingness to acquire abroad. This thesis extends behavioural finance by showing how internal psychological anchors and external cultural contexts interact with market behaviour. The findings offer practical implications for managers and investors by illustrating when, why, and how behavioural factors may distort valuation, influence payment method, and shape acquisition outcomes. The main aim of this thesis is to offer a deeper behavioural understanding of M&A decisions in both domestic and international contexts.