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ABSTRACT Prior literature on the effects of gambling culture on firm risk-taking yields mixed evidence regarding whether such risk-taking benefits or harms the firm. We investigate this issue by examining the influence of local gambling culture on corporate merger and acquisition (M&A) activity and the subsequent deal outcomes using a sample of Chinese listed firms from 2013 to 2022. Our analysis reveals a significant positive relationship between local gambling culture and firm M&A activity, and these deals are associated with higher firm value and more positive media coverage. In line with the notion that a higher gambling culture fosters greater risk tolerance, the effects are stronger for firms facing higher risk. The presence of well-developed local formal institutions further amplifies these positive effects, as a robust legal and regulatory environment provides firms the assurance required to engage in high-risk transactions. Our analysis indicates that this influence operates through the institutional-level culture of risk-taking, rather than through the individual risk-taking attitudes of the CEO. Additionally, we find that the effect of local gambling culture on a firm’s M&A intensity is amplified by investors’ preference for stocks with lottery-like characteristics. Overall, our findings shed new light on the “bright side” of gambling culture, suggesting it can encourage firms to undertake value-enhancing investments, such as M&As, that they might otherwise avoid in high-stakes situations.
Li et al. (Fri,) studied this question.