Strategic Risk-Taking and Value Creation : Evidence from the Market for Corporate Control

In a large sample of U.S. M&As over 1990-2007 we find that value is created when risk-takers absorb risk-avoiding target firms, but it is destroyed when bidders with a conservative investment policy takeover risk-taking target firms. This value effect is particularly pronounced when bidders are relatively better governed. Further, while bidder's poor governance leads to lower levels of internal and external risk-taking, the risk propensity of target firms is not compromised by their governance. Thus, our study offers new direct evidence that strategic risk transfer is an important channel of value creation in M&As