Eliciting managerial willingness to invest: A revealed-preference approach

• Propose a revealed-preference approach to uncovering corporate willingness to invest. • Managerial willingness to invest increases after U.S. state antitakeover legislations. • Increases in the willingness post legislation are more prominent for firms susceptible to takeover threats. • Takeover threats suppress corporate willingness to invest. • Accounting for financial constraints and inventory dependence in the analysis does not alter the inference. Decision-making entails two underlying economic forces – capacity and willingness of taking on the subject under considerations. Capacity reflects available opportunities and typically weighs benefits against costs of the decision. Willingness pertains to the decision maker’s tolerance for the risk associated with this decision. Compared to capacity, willingness is arguably more primal and much harder to quantify. Our study illustrates a way to divulge managerial willingness by applying a revealed-preference approach toward a large sample of U.S. firms’ investment decisions in the setting of staggered passages of U.S. state antitakeover laws. Our results suggest that takeover threats suppress managerial desire to invest and that governments play a vital role in affecting managerial risk preference, and in turn, corporate strategic choices. Our approach, with modifications and refinements, has the potential of a broad application toward understanding how and under what conditions managerial willingness affects the decision-making processes.