The Impact of Market-Nurtured Optimism on Mergers: Empirical Evidence by the Taiwan's Equity Market

Pei-Gi Shu, Yin-Hua Yeh, Shean-Bii Chiu and Li-Hui Wang ()
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Pei-Gi Shu: Department of Business Administration, Fu Jen Catholic University, No. 510, Jhongjheng Rd., Sinjhuang Dist., New Taipei City 24205, Taiwan
Yin-Hua Yeh: Graduate Institute of Finance, National Chiao Tung University, Hsin Chu 300, Taiwan
Shean-Bii Chiu: Department of Finance, National Taiwan University, Taipei City 106, Taiwan
Li-Hui Wang: Department of Finance, Chihlee Institute of Technology, Wunhua Road, New Taipei City, Banciao 22050, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2013, vol. 16, issue 03, 1-41

Abstract: We create a novel measure of market-nurtured optimism in that managers become more optimistic if the market had responded more favorably, and to a larger extent to positive earnings surprises, than to negative earnings surprises. These market-nurtured managers are prone to engage in value-destructive mergers. The inclination is further reinforced by abundant internal cash. In contrast, a good governance structure mitigates the odds of engaging in mergers and the detrimental effect associated with mergers. The acquisitions launched by overconfident managers are associated with lower market value.

Keywords: Overconfidence; mergers; corporate governance (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2013
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091513500215

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