CEO Overconfidence and Independence of the Board of Directors on the Effectiveness of M&A

In this paper, we assess the impact of non-financial factors, such as the impact of overconfidence of the CEO, his experience in M&A transactions and the independence of the Board of Directors on the effectiveness of M&A deals. As a sample were selected companies from the S&P500 index. The paper also included the following issues related to the measurement of CEO overconfidence and the independence of the Board of Directors. Recommendations were given to neutralize the negative impact of non-financial factors on the effectiveness M&A To answer these questions, we have conducted a literature analysis on this topic. The option contracts of the CEO were selected as a measure of his overconfidence. To measure the independence of the Board of Directors, the number of independent directors were taken from the total number. To assess the effectiveness of M&A transactions, the concept of abnormal CAR returns was used. The sample consists of 2524 transactions that were carried out for the period from 2011 to 2020. The hypothesis about the negative effect of the CEO's self- confidence was confirmed. The experience of conducting M&A transactions in one company does not play a positive role on the profitability of the following transactions. Avoiding a situation where the same person holds the post of Chairman of the Board of Directors and CEO of the company is necessary to divide the negative impact of a self-confident CEO (the head of the company) on the effectiveness of M&A deals.