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Impact of CEO Cognitive Biases on M&A Performance of Russian Firms

Student: Anna Vershinina

Supervisor: Anastasia N. Stepanova

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2020

In this research we investigate the impact of CEO cognitive errors on M&A performance measured by cumulative abnormal return. We concentrate on two cognitive errors, overconfidence and availability bias, which significantly influence behavior of CEO causing him to be irrational. Based on the sample of 237 M&A deals conducted by the acquiring companies that operate in Russian capital market, we prove that CEO overconfidence negatively affect M&A performance while availability bias, measured as CEO’s negative experience in the previous M&A deal, has the opposite impact on M&A performance. We also show that corporate governance mechanisms are able to level negative impact of CEO cognitive errors. Generally speaking, we may conclude that people in emerging markets are prone to the same behavioral biases as people in developed markets, the only difference is the level of corporate governance mechanisms that are able to limit CEO irrational behavior by providing proper control.

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