Abstract
The behavioral finance literature attributes failed M&As to CEO overconfidence. We investigate the source of CEO overconfidence that leads to failed M&As. Among various determinants of CEO overconfidence, we propose that power-led CEO overconfidence delivers undesirable consequences in corporate investments. Using CEO-level data, we find that CEO power increases the probability of a CEO being overconfident. We also show that power-led overconfident CEOs tend to complete more deals regardless of economic circumstances, do stock acquisitions, and make diversifying acquisitions, relative to non-overconfident CEOs. The results suggest that the findings of previous studies on M&As by overconfident CEOs could be driven by power-led overconfident CEOs.
| Original language | English |
|---|---|
| Article number | 101141 |
| Journal | North American Journal of Economics and Finance |
| Volume | 52 |
| DOIs | |
| State | Published - Apr 2020 |
Bibliographical note
Publisher Copyright:© 2019 Elsevier Inc.
Keywords
- CEO overconfidence
- CEO power
- Corporate governance
- Mergers and acquisitions
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