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The blind power: Power-led CEO overconfidence and M&A decision making

Hwang, Hyoseok (David), Hyun-Dong Kim and Taeyeon Kim

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

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.

Keywords: CEO overconfidence; CEO power; Mergers and acquisitions; Corporate governance (search for similar items in EconPapers)
JEL-codes: D91 G34 G41 M12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.najef.2019.101141

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