RISK REDUCTION AS A MANAGERIAL MOTIVE FOR CONGLOMERATE MERGERS

In this study, a ″managerial″ motive for conglomerate merger is advanced and tested. Specifically, managers, as opposed to investors, are hypothesized to engage in conglomerate mergers to decrease their largely undiversifiable ″employment risk″ (i. e. , risk of losing job, professional reputation, etc. ). Such risk-reduction activities are considered here as managerial perquisites in the context of the agency cost model. This hypothesis about conglomerate merger motivation is empirically examined in two different tests and found to be consistent with the data.