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
Date Written: March 31, 2010
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: Suggested Citation