Who makes acquisitions? CEO overconfidence and the market's reaction

• 成果类型: Article
• 署名作者: Malmendier, Ulrike; Tate, Geoffrey
• 署名单位: University of California System; University of California Los Angeles; University of California System; University of California Berkeley
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2007.07.002
• 发表日期: 2008
• 页码: 20-43
• 关键词: Mergers and acquisitions; returns to mergers; overconfidence; hubris; Managerial biases

摘要

Does CEO overconfidence help to explain merger decisions? Overconfident CEOs overestimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs' personal over-investment in their company and their press portrayal. We find that the odds of making an acquisition are 65% higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (-90 basis points) is significantly more negative than for non-overconfident CEOs (-12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance. (C) 2008 Elsevier B.V. All rights reserved.