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

Management Science, Forthcoming

34 Pages Posted: 7 Jun 2005 Last revised: 12 May 2014

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Yiming Qian

University of Iowa - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

We explore the history of mergers and acquisitions made by individual CEOs. Our study has three main findings: (1) CEOs' first deals exhibit zero announcement effects while their subsequent deals exhibit 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 subsequent deals; (3) CEOs' net purchase of stock is greater preceding subsequent deals than it is for first deals. We interpret these results as consistent with self-attribution bias leading to overconfidence. We also find evidence that the market anticipates future deals based on the CEO's acquisition history and impounds such anticipation into stock prices.

Keywords: overconfidence, hubris, self-attribution, frequent acquirer, mergers and acquisitions, insider trading

JEL Classification: G31, G32, G34

Suggested Citation

Billett, Matthew T. and Qian, Yiming, Are Overconfident CEOs Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers (September 2007). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=696301

Matthew T. 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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