Board overconfidence in mergers & acquisitions: A self-attribution bias

Axel Kind (axel.kind@uni-konstanz.de) and Torsten Twardawski (torsten.twardawski@uni-konstanz.de)
Additional contact information
Axel Kind: Department of Economics, University of Konstanz, Germany and University of St. Gallen, University of Basel
Torsten Twardawski: Department of Economics, University of Konstanz, Germany

No 2016-04, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: This study investigates whether overconfidence of board directors, gained via biased self-attribution in recent M&A deals, influences the quality of corporate acquisitions. We propose an experience-based measure of board overconfidence that complies with established theories in the fields of social psychology and group decision making and is related to the literature on CEO overconfidence and M&A transactions. The measure is found to correlate positively with optimistic insider trading of board directors before M&A deals and is thus a reliable proxy for board overconfidence. Based on a large set of public acquisitions carried out by large U.S. companies, we show that board overconfidence is negatively related to abnormal stock returns upon merger announcements and positively to the premiums paid in such transactions. The results are economically relevant and statistically robust and further suggest that the effect of board overconfidence is distinct from (and adds to) the documented influence of CEO overconfidence on the quality of corporate acquisitions.

Keywords: Board of Directors; Mergers and Acquisitions; Overconfidence; Self-Attribution Bias; Group Decision Making; Insider Trading; Corporate Governance (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02-16
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.uni-konstanz.de/FuF/wiwi/workingpaperse ... _Twardawski_2016.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:knz:dpteco:1604

Ordering information: This working paper can be ordered from
https://www.wiwi.uni-konstanz.de/en

Access Statistics for this paper

More papers in Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz Contact information at EDIRC.
Bibliographic data for series maintained by Office Ursprung (office.ursprung@uni-konstanz.de this e-mail address is bad, please contact repec@repec.org).