Managerial Discretion and Acquirers' Profitability : Evidence from Emerging Markets

Managers over the years have remained dominant forces in firms' investment decision-making processes, including decisions relating to mergers and acquisitions (M&As) transactions with different aims and objectives in mind. The effect of managerial discretion on firms' investment decisions concerning profit maximization are varied. This study, therefore, investigated the impact of managerial discretion on the profitability levels of acquirer firms from emerging markets. Using a firm-level data of 160 acquirers, selected from 10 emerging markets sourced from the Bloomberg Terminal, and employing the ordinary least squares technique, the results of the study show that the managerial discretion exercised by managers of emerging market acquirers negatively impact these acquirers' profitability levels. Therefore, the boards of these firms need to put in place monitoring and disciplinary measures to regulate managers' activities. This is because they have control over firms' resources and have discretionary powers over how to allocate them for unprofitable investments such as bad M & A deals to suit their interest at the expense of shareholders.