Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris
1997/03/01 by Mathew L. A. Hayward, Mathew Hayward, Donald C. Hambrick · 30 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Finance and Governance #Financial Markets and Investment Strategies #Auditing, Earnings Management, Governance
paper · doi:10.2307/2393810
Abstract
This study examines the role of a chief executive officer's hubris, or exaggerated self-confidence, in explaining the large size of some premiums paid for acquisitions. In a sample of 106 large acquisitions, we found that four indicators of CEO hubris are highly associated with the size of premiums paid: the acquiring company's recent performance, recent media praise for the CEO, a measure of the CEO's self-importance, and a composite factor of these three variables. The relationship between CEO hubris and premiums is further strengthened when board vigilance is lacking-when the board has a high proportion of inside directors and when the CEO is also the board chair. On average, we found losses in acquiring firms' shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses. Thus, CEO hubris has substantial practical consequences, in addition to having potentially great theoretical significance to observers of strategic behavior.
Cited by
- Executive Personality, Capability Cues, and Risk Taking
- The Acquisitive Nature of Extraverted CEOs
- It's All about Me: Narcissistic Chief Executive Officers and Their Effects on Company Strategy and Performance
- Political Ideologies of CEOs
- The Nixon-in-China Effect: Activism, Imitation, and the Institutionalization of Contentious Practices
- You Don’t Forget Your Roots: The Influence of CEO Social Class Background on Strategic Risk Taking
- Considering Rational Self-Interest as a Disposition: Organizational Implications of Other Orientation.
- Microfoundations of Routines and Capabilities: Individuals, Processes, and Structure
- CEO Narcissism and the Takeover Process: From Private Initiation to Deal Completion
- Solving theoretical and empirical conundrums in international strategy research: Linking foreign entry mode choices and performance
- Avoiding Bad Press: Interpersonal Influence in Relations Between CEOs and Journalists and the Consequences for Press Reporting About Firms and Their Leadership
- How Buyers Cope with Uncertainty when Acquiring Firms in Knowledge-Intensive Industries: Caveat Emptor
- Who makes acquisitions? CEO overconfidence and the market's reaction☆
- M&As AND THE GLOBAL STRATEGIES OF TNCs
- The differential effects of CEO narcissism and hubris on corporate social responsibility
- Behavior Towards R&D Investment of Family Firms CEOs: The Role of Psychological Attribute. [europepmc]
- Chief Executive Officer Proactive Personality and Acquisitions: A Fuzzy Set Qualitative Comparative Analysis of China's Listed Firms. [europepmc]
- Internal-Control Willingness and Managerial Overconfidence. [europepmc]
- Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China. [europepmc]
- Team Ownership and Philanthropy in Professional Sport: A Perspective on Organizational Generosity. [europepmc]
- CEOs' Financial Background and Non-financial Enterprises' Shadow Banking Business. [europepmc]
- CEO Overconfidence, Corporate Governance, and R&D Smoothing in Technology-Based Entrepreneurial Firms. [europepmc]
- Does personality still matter in e-commerce? How perceived hubris influences the assessment of founders' trustworthiness using the example of reward-based crowdfunding. [europepmc]
- Does Fintech affect the psychological traits of managers? Based on the perspective of manager overconfidence. [europepmc]
- Assessing Influence Mechanism of Management Overconfidence, Corporate Environmental Responsibility and Corporate Value: The Moderating Effect of Government Environmental Governance and Media Attention. [europepmc]
- What's inside the Mind of a CEO? The Effects of Discretionary Slack Resources on R&D Investment. [europepmc]
- Geographical peer effect in serial mergers and acquisitions: The influence of social learning and director network. [europepmc]
- The impact of performance feedback on corporate ESG performance: Mediating role of environmental strategy. [europepmc]
- Nexus Between Operational Efficiency and New Quality Productivity in Hospitals: Does Dean Overconfidence Matter? [europepmc]
- Board overconfidence and M&A performance: evidence from the UK [europepmc]
Related