Do Strong Boards and Trading in Their Own Firm's Stock Help CEOs Make Better Decisions? Evidence from Corporate Acquisitions by Overconfident CEOs.

61 Pages Posted: 20 Mar 2010 Last revised: 2 Aug 2017

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

Xu Li

School of Business; University of Texas at Dallas - Department of Accounting & Information Management

Date Written: April 23, 2012

Abstract

Little evidence exists on whether boards help managers make better decisions. We provide evidence that strong and independent boards help overconfident CEOs avoid honest mistakes when they seek to acquire other companies. In addition, we find that once-overconfident CEOs make better acquisition decisions after they experience personal stock trading losses, providing evidence that a manager's recent personal experience, and not just educational and early career experience, influences firm investment policy. Finally, we develop and validate a new CEO overconfidence measure that is easily constructed from machine-readable insider trading data, unlike previously-used measures.

Keywords: CEO overconfidence, behavioral corporate finance, corporate governance, mergers and acquisitions

JEL Classification: G32, G34, H32

Suggested Citation

Kolasinski, Adam C. and Li, Xu, Do Strong Boards and Trading in Their Own Firm's Stock Help CEOs Make Better Decisions? Evidence from Corporate Acquisitions by Overconfident CEOs. (April 23, 2012). Journal of Financial and Quantitative Analysis 48 (August 2013), 1173- 1206. , Available at SSRN: https://ssrn.com/abstract=1573395 or http://dx.doi.org/10.2139/ssrn.1573395

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Xu Li

School of Business ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
630
Abstract Views
3,600
rank
46,223
PlumX Metrics