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CEO Overconfidence and International Merger and Acquisition Activity

49 Pages Posted: 10 Jan 2012  

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate

Date Written: October 25, 2011

Abstract

This study examines the role that CEO overconfidence plays in an explanation of international mergers and acquisitions during the period 2000-2006. Using a sample of CEOs of Fortune Global 500 firms over our sample period, we find that CEO overconfidence is related to a number of critical aspects of international merger activity. Overconfidence helps to explain the number of offers made by a CEO, the frequency of diversifying acquisitions, and the use of cash to finance a merger deal. Although overconfidence is an international phenomenon, it is most extensively observed in individuals heading firms headquartered in Christian countries that encourage individualism while de-emphasizing long-term orientation in their national cultures.

Keywords: overconfidence, mergers, hubris, behavioral

JEL Classification: G35, C23

Suggested Citation

Ferris, Stephen P. and Jayaraman, Narayanan and Sabherwal, Sanjiv, CEO Overconfidence and International Merger and Acquisition Activity (October 25, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1982286

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Sanjiv Sabherwal (Contact Author)

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States
817-272-5520 (Phone)
817-272-2252 (Fax)

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