Managerial Overconfidence and Acquisition Decision
Date Issued
2010
Date
2010
Author(s)
Chang, Li-Jen
Abstract
This study examines the effect of CEO overconfidence on merger decisions and the corresponding market responses. Overconfident CEOs tend to overestimate their ability in generating value. Hence, there is a greater chance that they conduct more mergers with a lower-than-average quality and sequentially poorer market responses. We study 673 US firms and their merger bids during 1996 and 2006. The empirical results show that overconfident CEOs are more likely to conduct mergers. This is more evident when the overconfident CEOs are in firms with lower managerial power. The market reacts significantly more negative to the mergers announced by overconfident CEOs than those by rational CEOs.
Subjects
Mergers and Acquisitions
Overconfidence
Hubris
Dictatorship
Managerial biases
Type
thesis
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