Do Managers Respond to a Negative Market Reaction? Evidence from U.S. M&A Deals

This study aims to examine the influence of negative market reaction on the probability the M&A deal is completed and the role of CEO overconfidence in the decision-making process. It is studied whether managers take into consideration the market reaction on M&A deal proposal and how managerial overconfidence affects the final decision on deal closing given the investors treat the deal as potential failure. Previous studies show that managers tend to listen to the adverse market reaction. However, there is little research on the question of how CEOs responsiveness changes when overconfidence is present. Based on the data collected on U.S. M&A completed and withdrawn deals over the period from 2006 to 2017, no evidence that on average managers listen to the market reaction while making investment decisions is found. Nevertheless, some evidence supports the hypothesis that more overconfident CEOs on average neglect market opinion with greater probability.