Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers
Matthew T. Billett
Indiana University - Kelley School of Business - Department of Finance
University of Iowa - Department of Finance
AFA 2006 Boston Meetings Paper
We explore the source of managerial hubris in mergers and acquisitions by examining the history of deals made by individual acquirers. Our study has three main findings: (1) Compared to their first deals, acquirers of second and higher-order deals experience significantly more 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 future deals; (3) Top management's net purchase of stock is greater preceding high order deals than it is for first deals. We interpret these results as consistent with self-attribution bias leading to managerial overconfidence. We also find evidence that the market anticipates future deals based on an acquirer's acquisition history and impounds such anticipation into stock prices.
Number of Pages in PDF File: 38
Keywords: frequent acquirer, self-attribution bias, overconfidence, hubris, mergers and acquisitions
JEL Classification: G31, G32, G34
Date posted: March 20, 2005
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