Who Makes Acquisitions? CEO Overconfidence and the Market&Apos;S Reaction

@article{Malmendier2003WhoMA,
  title={Who Makes Acquisitions? CEO Overconfidence and the Market\&Apos;S Reaction},
  author={Ulrike Malmendier and Geoffrey A. Tate},
  journal={Experimental \& Empirical Studies eJournal},
  year={2003}
}
Overconfident CEOs over-estimate their ability to generate returns. Thus, on the margin, they undertake mergers that destroy value. They also perceive outside finance to be over-priced. We classify CEOs as overconfident when, despite their under-diversification, they hold options on company stock until expiration. We find that these CEOs are more acquisitive on average, particularly via diversifying deals. The effects are largest in firms with abundant cash and untapped debt capacity. Using… Expand
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