Are Overconfident CEOs Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers
Matthew T. Billett
Indiana University - Kelley School of Business
University of Iowa - Department of Finance
Management Science, Forthcoming
We explore the history of mergers and acquisitions made by individual CEOs. Our study has three main findings: (1) CEOs' first deals exhibit zero announcement effects while their subsequent deals exhibit negative announcement effects; (2) While acquisition likelihood increases in the performance associated with previous acquisitions, previous positive performance does not curb the negative wealth effects associated with subsequent deals; (3) CEOs' net purchase of stock is greater preceding subsequent deals than it is for first deals. We interpret these results as consistent with self-attribution bias leading to overconfidence. We also find evidence that the market anticipates future deals based on the CEO's acquisition history and impounds such anticipation into stock prices.
Keywords: overconfidence, hubris, self-attribution, frequent acquirer, mergers and acquisitions
JEL Classification: G31, G32, G34Accepted Paper Series
Date posted: January 14, 2008
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