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CEO Overconfidence and International Merger and Acquisition Activity

Published online by Cambridge University Press:  04 February 2013

Stephen P. Ferris ,
Narayanan Jayaraman  and
Sanjiv Sabherwal
Stephen P. Ferris
Affiliation:
ferriss@missouri.edu, Trulaske College of Business, University of Missouri, 404F Cornell Hall, Columbia, MO 65211;
Narayanan Jayaraman
Affiliation:
narayanan.jayaraman@mgt.gatech.edu, Scheller College of Business, Georgia Institute of Technology, 800 W Peachtree NW, Atlanta, GA 30308;
Sanjiv Sabherwal
Affiliation:
sabherwal@uta.edu, College of Business, University of Texas at Arlington, Box 19449, Arlington, TX 76019.
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Abstract

This study examines the role that chief executive officer (CEO) overconfidence plays in an explanation of international mergers and acquisitions during the period 2000–2006. Using a sample of CEOs of Fortune Global 500 firms over our sample period, we find that CEO overconfidence is related to a number of critical aspects of international merger activity. Overconfidence helps to explain the number of offers made by a CEO, the frequencies of nondiversifying and diversifying acquisitions, and the use of cash to finance a merger deal. Although overconfidence is an international phenomenon, it is most extensively observed in individuals heading firms headquartered in Christian countries that encourage individualism while de-emphasizing long-term orientation in their national cultures.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 1 , February 2013 , pp. 137 - 164
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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