Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers

Abstract:     
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.

Keywords: frequent acquirer, self-attribution bias, overconfidence, hubris, mergers and acquisitions

JEL Classification: G31, G32, G34

working papers series