Speak out your risk: Dialectal effects on merger decisions

The “biological code” of a language can be measured by tone patterns and pitch heights, which are recognized to foster and promote certain personal traits like self-confidence and risk tolerance. Guided by linguistic and financial research, this study examines the impact of Chinese dialects on CEOs' merger decisions. We hypothesize that CEOs in China who speak different dialects may have different tendencies to engage in risky activities, like mergers and acquisitions (M&As). Results suggest that CEOs who speak dialects with fewer rising tones and higher pitch are more likely to undertake M&As, while CEOs who speak dialects with more rising tones and lower pitch are less likely to undertake M&As. The results are robust to various specifications, including the impact of local economic and regional cultural factors. Additionally, firms' performances after M&As are evaluated. The results suggest that CEOs' overconfidence and high-risk tolerance are likely to cause M&As to be less successful in the long run.