An Investigation Into Managerial Overconfidence And M&as

In recent20years, despite the constant and frequent mergers and acquisitions activity across various industries throughout the world, limited evidence of the success of corporate mergers and acquisitions have been documented. The vast body of academic research demonstrates that most mergers add no value or reduce shareholder value for the acquiring firm. Given the failure of so many mergers, the question of why mergers continue to occur in large numbers remains.The mergers and acquisitions literature suggests that there are three main motives for takeovers. The first motive is the creation of synergies so that the value of a new combined entity exceeds the sum of its previously separate components. The second motive arises due to agency conflicts between managers and shareholders. Jensen and Meckling (1976) suggest that managers may rationally pursue their own objectives at the expense of shareholders’interests. Finally, the third motive for takeovers is managerial hubris (Roll,1986). Roll’s hubris hypothesis suggests that managers of acquiring firms make valuation errors because they are too optimistic about their own skills, overestimated the future state return, the potential synergies in a proposed takeover, however, underestimated the potential risk exited in a proposed merger and acquisition. As a result, they overbid for target firms to the detriment of their stockholders.Thus, there are two main theories-rational responses to agency costs and non-rational managerial hubris-that have been suggested to explain why managers make value-destroying acquisitions. Although the hubris hypothesis has considerable intuitive appeal, and has been discussed in the literature for two decades, it has only infrequently been subjected to direct empirical testing. Managerial overconfidence comes to the forefront as the most common behavioral explanations for the continued prevalence of ill-advised mergers and acquisitions. Based on the above, this dissertation examines the propositions as follows:whether the managers from listed companies in China have overconfident psychological biases? Whether the managerial overconfidence impact on the corporate mergers and acquisitions’ decision? how about the managerial overconfidence impact on corporate mergers and acquisitions decisions? What are the distinctions between overconfident and non-overconfident managers on corporate mergers and acquisitions decisions? How to define and measure managerial overconfidence? Finally, to investigate how about the mergers and acquisitions’ announcement return? The framework of the dissertation is as follows:Chapter1:Introduction. This first chapter introduces the dissertation briefly. Firstly, it explains the background, concept related to the dissertation, subject and value of this dissertation. And then introduces the content, the structure and study methods. Finally, discusses about the innovations, the drawbacks of the dissertation, and look forward to the future research on this study. Chapter2:Literature review. Firstly, review on the relevant literature on managerial overconfidence from both rational and irrational-behavioral theory perspectives. Chapter3: Based on specific context capital market, it explains that the issues exist in the listed companies of China. Chapter4:Analyze and comment on the related theory of managerial overconfidence of mergers and acquisitions. and then analyze the motive factors driving M&As from the perspective of behavioral economics theory. Chapter5:Empirically examines managerial overconfidence impact on the mergers and acquisitions decision of corporate. The chapter explored Multiple-Logistic regression and explained variables, overconfidence-linked proxies and the control variables, selected the data from the listed companies in China to investigate. Chapter6:The chapter introduces the empirical examine managerial overconfidence on characteristics of mergers and acquisitions. The chapter explored Multiple-Logistic regression and explained variables, overconfidence-linked variables and the control variables, selected the data from the listed companies in China to study. Chapter7:The dissertation introduces the empirical investigate into acquisitions’ announcement returns in this chapter. The chapter explored event study and explained variables, overconfidence-linked variables and the control variables, selected the data from the listed companies in China to examine. Chapter8:To conclude. Some concluding comments and policy proposals are presented in this chapter. Based on the theory analysis and empirical investigations in the former chapters, this chapter summarizes this dissertation conclusion and make some policy proposals.This dissertation examines the impact of seven overconfidence-linked individual characteristics on the mergers and acquisitions’ decisions of managers from domestic exchange-traded firms. Combining China’s special market environment, investigates the issues of managerial overconfidence by the companies listed in SSE and Shenzhen SE in the period2004-2012, attempts to make some innovation as following:(1)Earlier studies related on mergers and acquisitions analyzed only from managers’ decision on whether or not engaging in mergers and acquisitions, but not distinguished the frequency of merger from the once behavior. In order to fully comprehend the unique characteristics of managers who engaged in high frequency mergers, this dissertation analyzed the occurrence from both merger decision and high frequency merger perspectives.And then, according to Moeller et al.(2004), the mergers and acquisitions’characteristics contains such as, acquirers’ medium of payment and merger premium. Since the target firm will require the premium for their shareholders and information asymmetry exited, bidding firm cannot obtains the exact information of the target and overestimate their firms’ future value, either due to inflated merger project returns or to exaggerated merger synergies, underestimate the potential risks. As a result, the bidder will pay too high premium. Finally, researchers examined the impact of managerial overconfidence on mergers and acquisitions in China lately, this dissertation explores the impact of the managerial overconfidence on mergers and acquisition from local trade-exchanged data to investigate merger decision, merger characteristics and merger announcement returns respectively.