Managerial Overconfidence in High and Low Valuation Markets and Gains to Acquisitions

International Review of Financial Analysis, Vol. 19, pp. 368-378, 2010

38 Pages Posted: 25 Feb 2009 Last revised: 17 Apr 2011

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Dimitris Petmezas

University of Surrey - Surrey Business School

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: March 31, 2010

Abstract

In this paper we empirically investigate bidders’ performance managed by overconfident and non-overconfident managers in high and low market valuation periods. Using a sample of UK acquisitions in the period 1990-2005, we provide evidence that the interaction between market valuation and different behavioral traits of managers is a determinant of bidders’ returns. In contrast to overconfident managers, non-overconfident managers conduct value-creative acquisition deals in all valuation periods. In addition, when we control for acquirer and deal characteristics, we find that bidders with non-overconfident managers gain the most in high valuation periods, while firms are better off without overconfident managers in any type of market conditions.

Keywords: Market Valuation, managerial overconfidence, stock options, short-term wealth effects

JEL Classification: G14, G30, G34

Suggested Citation

Croci, Ettore and Petmezas, Dimitris and Vagenas-Nanos, Evangelos, Managerial Overconfidence in High and Low Valuation Markets and Gains to Acquisitions (March 31, 2010). International Review of Financial Analysis, Vol. 19, pp. 368-378, 2010. Available at SSRN: https://ssrn.com/abstract=1349401

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Dimitris Petmezas (Contact Author)

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Evangelos Vagenas-Nanos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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