The Impact of Market-Nurtured Optimism on Mergers:
Journal
Review of Pacific Basin Financial Markets and Policies
Journal Volume
16
Journal Issue
3
Date Issued
2013-09-01
Author(s)
Abstract
We create a novel measure of market-nurtured optimism in that managers become more optimistic if the market had responded more favorably, and to a larger extent to positive earnings surprises, than to negative earnings surprises. These market-nurtured managers are prone to engage in value-destructive mergers. The inclination is further reinforced by abundant internal cash. In contrast, a good governance structure mitigates the odds of engaging in mergers and the detrimental effect associated with mergers. The acquisitions launched by overconfident managers are associated with lower market value. © 2013 World Scientific Publishing co.and Center for Pacific Basin Business, Economics and Finance Research.
Subjects
corporate governance | mergers | Overconfidence
corporate governance; mergers; Overconfidence
SDGs
Other Subjects
corporate strategy; governance approach; merger; optimization
Type
journal article