76 Executive Stock Options, Corporate Cash Holdings and M&A Decisions with long-term firm value. Cash literature argues the precautionary cash holdings prevent firms from giving up profitable investments and defend against unexpected shocks (Opler et al., 1999). Bates et al. (2009) demonstrate firms increase their cash position while facing idiosyncratic risk and find the cash position is usually positively related to the R&D investments. Accordingly, some prior studies verify the importance of internal funds in conducting R&D investments (Brown and Petersen, 2011; Thakor and Lo, 2015). That is, sufficient cash holdings enable firms not only to maintain their R&D investments but also to defend against uncertainty in the financial market. 2.2 Risks of Mergers and Acquisitions Some earlier management literature discusses the changes in firm risk after M&As, for systematic risk and idiosyncratic risk, respectively. The post-merger systematic risk is sensitive to the targets’ systematic risk and the improved market power following the mergers. Acquirers may experience lower post-merger systematic risk due to higher corporate market power with the improved competitive ability from mergers. The stronger market power gives firms more abilities to overcome an economic recession because these firms can transfer the potential losses to firms with low market competitiveness (Moyer and Chatfield, 1983). Firms can build up their competitive advantages by using different corporate strategies, including tangible, intangible and multi-competition interrelationships. First, to acquire tangible assets like similar production, technology and distribution can create cost-saving synergies resulting from economies of scale and of scope. Second, intangible areas including relevant knowledge, generic skills, managerial know-how and brands can be transferred between an acquirer and a target. Third, multi-competition indicates firms can combine corporations in different industries to mitigate competitive disadvantages. The consolidated corporation can then provide complete services and products to stimulate customers’ satisfaction and royalty, strengthening the market competitiveness for acquiring firms. (Lubatkin, 1983; Lubatkin and O’Neill, 1987; Chatterjee and Lubatkin, 1990). However, these effects are more pronounced in related M&As (Chatterjee and Lubatkin, 1990). Meanwhile, M&A activities affect not only a firm’s systematic risk but also its exposure to idiosyncratic risk. Acquirers could mitigate post-merger idiosyncratic risk through the portfolio effect of business diversification, especially in unrelated M&As
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