Abstract
Acquisitions rarely deliver on performance expectations making these strategic decisions inherently risky but these choices still occur at very high levels. Framing is one of the most commonly cited causes for deviations from rational decision making and holds theoretical promise when used to explore risk taking in acquisitions. In this study, we examine 114 acquisitions from 2004 to 2014 to examine the impact of framing on acquisition premiums. We contrast two commonly researched risk behavior theories, prospect theory and the threat rigidity hypothesis, to investigate which theory predicts acquisition risk taking behavior in a given frame. Our findings indicate that when an acquisition is framed as an opportunity, organizations are likely to pay higher acquisition premiums; however, when acquisitions are framed as threats, organizations pay lower premiums. These results show risk seeking behavior in the face of opportunities and risk averse behavior in the face of threats supporting the threat rigidity ...
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