Board overconfidence in mergers and acquisitions

Torsten Twardawski and Axel Kind

Journal of Business Research, 2023, vol. 165, issue C

Abstract: Past research has shown that CEOs become overconfident through biased self-attribution in previous M&A transactions, which negatively affects subsequent M&A deals. However, M&A decisions are de jure and de facto not only influenced by a single person, the CEO, but by a group of individuals, namely the board of directors. In this study, we investigate whether and to what extent the overconfidence of board directors affects key acquisition outcomes. Building on the overconfidence literature, we argue that board directors become overconfident through biased self-attribution in recent M&A deals and hypothesize that their overconfidence leads to poorer subsequent M&A outcomes. By studying investor reactions and premiums paid for a broad set of public acquisitions carried out by large U.S. companies, we find strong support for our predictions.

Keywords: Board of directors; Corporate governance; Group decision making; Mergers and acquisitions; Overconfidence; Self-attribution bias (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:165:y:2023:i:c:s0148296323003843

DOI: 10.1016/j.jbusres.2023.114026

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