While boys are being boys, could they be screwing up the economy?
Economists at the University of British Columbia’s Sauder School of Business looked at hundreds of real mergers and acquisitions and found that younger male CEOs are more likely to make bids to acquire companies, and also withdraw those bids if they’re rejected. It’s no coincidence, the study authors write in the journal Management Science, that those younger CEOs typically have more testosterone than older ones.
Like two rams bashing heads, “high testosterone levels make men more likely to undertake dominance-seeking behaviors,” explains Terry Burnham, a Harvard University economist who studies behavior. And that can wreck shareholder value.
We’ve all heard about male CEOs who seem to care more about strutting their big shotness than they care about, oh, investors or the economy. John Thain, former CEO of Merrill Lynch, for instance, was doling out $20 billion in bonuses and buying himself a $35,000 toilet for his office while the bank was fueling the mortgage crisis. Take a look at the guy’s Superman jawline – he’s clearly got some testosterone swirling around.
Burnham proved a link to testosterone in 2007 when he measured levels in males who played the “ultimatum game.” In the game, a “proposer” gets, say, $20. He must offer some of that to a responder. If the responder accepts, they both keep the agreed amounts. If the responder rejects, both get nothing. Rational economics says the responder would accept any ultimatum amount because, after all, he still comes out ahead. But often, when proposers offer low amounts, responders reject out of spite and Burnham showed that far more men with high testosterone levels reject low-ball ultimatums, turning both into losers.
“When your young male CEO is making an acquisition bid, you wonder whether there is economic justification such as shareholder value,” Sauder professor Kai Li said, “or sheer hormone effects at work.” His suggested check on runaway testosterone? “Risk management run by older guys, or females.”
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