The Influence of Personality-Led and Power-Led CEO Overconfidence on M&A Decision Making and Performance in US

Student: Zhaparalieva Zhyldyz

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2020

In the corporate finance literature unsuccessful M&A deals are usually attributed to CEO overconfidence. In previous studies CEO overconfidence was defined as personal characteristics or self-attribution bias. In this research we provided empirical evidence that among different sources CEO power due-to the weak corporate governance is the main influencing factor on exhibiting overconfidence. We divided CEO overconfidence on the two types power-led and personality-led. Based on the sample of 822 M&A deals made in US market over the period 2004- 2019 we investigated the influence of power-led and personality-led CEO overconfidence on M&A decision making and performance. We established that power-led CEO overconfidence is positively influence on conducting diversifying deals and unrelated with probability of making cross-border deal or using non-cash method of deal payment. Most importantly, we found that power-led CEO overconfidence is negatively related with M&A deal performance. Thus, we determined that it is essential to separate between power-led and personality-led CEO overconfidence in order to defining the source of CEO M&A decision making biases and their subsequent influence on deal performance.

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