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

38 Pages Posted: 20 Mar 2005  

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Yiming Qian

University of Iowa - Department of Finance

Date Written: March 2005

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

Suggested Citation

Billett, Matthew T. and Qian, Yiming, Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers (March 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=687534 or http://dx.doi.org/10.2139/ssrn.687534

Matthew Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Yiming Qian (Contact Author)

University of Iowa - Department of Finance ( email )

S382 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0934 (Phone)
319-335-3690 (Fax)

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