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

  title={Who Makes Acquisitions? CEO Overconfidence and the Market\&Apos;S Reaction},
  author={Ulrike Malmendier and Geoffrey A. Tate},
  journal={Experimental \& Empirical Studies eJournal},
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
CEO Overconfidence and Corporate Investment
We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds asExpand
Overconfidence, CEO Selection, and Corporate Governance
We develop a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEOExpand
CEO overconfidence and the value of corporate cash holdings
Cash holding is on average more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board is associated with an increase of $0.28 in the value of $1.00Expand
CEO Overconfidence, REIT Investment Activity and Performance
This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investmentsExpand
Managerial Overconfidence and Dividend Policy
Managerial overconfidence has been shown to significantly affect corporate investment, financing policy and merger appetite. We investigate whether it also impacts dividend policy. OverconfidentExpand
Acquisitions Driven by Stock Overvaluation: Are They Good Deals?
Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. WeExpand
CEO Overconfidence and Corporate Financial Distress
This paper examines the relation between CEO overconfidence and corporate financial distress. We investigate whether CEO overconfidence accounts for corporate financial distress using U.S. data fromExpand
CEO Overconfidence and Dividend Policy
We develop a model of the dynamic interaction between CEO overconfidence and dividend policy. The model shows that an overconfident CEO views external financing as costly and hence builds financialExpand
CEO Overconfidence and Corporate Diversification Value
This study provides evidence that diversified firms run by overconfident CEOs experience 12.5 to 14.1 percent value loss compared to diversified firms run by rational CEOs. In addition, the odds ofExpand
Managerial overconfidence and the buyback anomaly
Abstract While positive, long-run abnormal returns following share repurchase announcements are substantially lower when CEOs are overconfident. This effect is particularly strong for (i) difficultExpand


Management optimism and corporate acquisitions: evidence from insider trading
In this study we integrate evidence about managers' personal beliefs about their firms' prospects into an analysis of managerial decisions on acquisitions and takeover resistance. We examine insiderExpand
CEO Overconfidence and Corporate Investment
We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds asExpand
Do Bidder Managers Knowingly Pay Too Much for Target Firms
This study examines the stock transactions of top managers of bidder firms for their personal accounts as signals about their motivations regarding corporate takeovers. Overall, the data indicateExpand
Does Investor Misvaluation Drive the Takeover Market?
This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios andExpand
What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions
We study shareholder returns for firms that acquired five or more public, private, and/or subsidiary targets within a short time period. Since the same bidder chooses different types of targets andExpand
Are CEOS Really Paid Like Bureaucrats?
A common view of CEO compensation is that there is essentially no correlation between firm performance and CEO pay. This calls into question an important component of effective corporate governance.Expand
Do Corporations Award CEO Stock Options Effectively
This paper analyzes stock option wards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options performance incentives haveExpand
Price Pressure Around Mergers
This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure aroundExpand
Does Corporate Diversification Destroy Value?
We analyze several hundred firms that expand via acquisition and0or increase their number of business segments. The combined market reaction to acquisition announcements is positive but acquiringExpand
Tobin's q, Corporate Diversification, and Firm Performance
In this paper, we show that Tobin's q and firm diversification are negatively related throughout the 1980s. This negative relation holds for different diversification measures and when we control forExpand