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Big deal went sour? Blame the testosterone

A chief executive officer's patience and co-operation can make or break a corporate merger or acquisition. That's no secret. But researchers at the University of British Columbia's Sauder School of Business now offer a biological explanation for male CEOs' willingness, or lack thereof, to negotiate: testosterone levels.

The UBC team crunched the numbers for 350 corporate deals completed between 1997 and 2007 and determined that the aggression-causing hormone directly affects a male CEO's tendency to bid for a company - and to walk away from an unfavourable deal.

"Normally, assets should go to buyers that value [them]the most," finance professor and lead researcher Maurice Levi said, "if decisions are based purely on the basis of rationality." However, his team found that hormones intervene and make CEOs bid for things they don't necessarily need, or turn down offers out-of-hand, without trying to negotiate better terms.

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"They might be pursuing things that give them the most dominance, but do not give them the most value," Mr. Levi said.

Notably, men with higher testosterone levels are 20 per cent more likely to walk away from a takeover offer. They are also 4 per cent more likely to make takeover bids, a small effect but still statistically significant.

The Sauder study was based on a 2007 Harvard University experiment in which pairs of male participants tried to make a deal to split $40. Participants with above-average testosterone levels, tested in a laboratory, were more likely to reject a lowball offer, whereas those with below-average levels were less likely to drive a hard bargain.

Because the UBC researchers cannot go back in time and study CEOs' testosterone levels at the time of actual deal making, they used age as a proxy for it. Until a man hits 45, his testosterone levels remain fairly stable, then drop off significantly - a fact to which Mr. Levi, who is in his 60s, said he can personally attest.

But the researchers didn't stop there, acknowledging that age can affect decision-making for many reasons, such as having more negotiation experience. About 20 such variables were accounted for; the researchers even addressed whether marriage, which has been found to lower testosterone levels, affects CEOs' decisions. Ultimately, it wasn't an important factor because the vast majority of CEOs are married, which minimizes the difference between them.

In the end, the researchers concluded that testosterone was the only dominant factor that remained.

Mr. Levi said he knows his data isn't driven by test tubes and biological samples, and he's okay with that. He hopes it might inspire a researcher to do something on a bigger scale one day. "The danger with something like this is to say it's not perfect research," he said. "If you only look where the light is and don't look out in the dark areas, you might not find the truth."

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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