Manager Overconfidence,Debt Capacity And M&A Premium

Due to the good policies and economic transition,the transactions of mergers and acquisitions in the last ten years have a significant increase.M&A has gradually become an important way for enterprises to achieve leapfrog development in the capital market.Behind the boom of mergers and acquisitions market,there is mine of high premium.Although high premium affects the efficiency and performance of M&A in the capital market,business executives are still keen to pay high premium.Generally speaking,executives play an important role in the acquisition of relevant decisions.In addition to the driving of necessary economic interests,individual characteristics and cognitive biases of senior managers will eventually lead to profound influence on merger decision.Overconfidence managers are easy to overestimate their ability to produce management decision-making deviation,so it has a strong theoretical and practical significance to study the premium payment behavior from the perspective of behavioral finance from the financial behavior.At the same time,managerial overconfidence enterprises prefer debt financing than other companies.The size of the debt ability has important effect on the management decisions,so this paper mainly studies the relationship between Managerial Overconfidence and premium from the perspective of enterprise's debt capacity or debt capacity.This paper takes the mergers and acquisitions events of 2007-2015 as the objects of study.Combining with the existing research results of literature review,we sort the current research situation of managerial overconfidence,debt capacity and merger premium.Based on prospect theory,higher order theory and self attribution bias theory,we analyze the influence of Managerial Overconfidence on payment premium.Based on the pecking order theory of financing,principal-agent theory and debt constraint angle,we analyze the moderating effects of debt capacity,and put forward three hypotheses.Based on theoretical and empirical analysis,this paper makes the following conclusions:Managerial Overconfidence companies are more likely to pay a higher premium on acquisition decision;management overconfidence of private enterprises are more likely to pay a high premium than state-owned enterprises;management overconfidence company is used to pay a higher premium,debt capacity plays a positive regulatory role.The size of the debt capacity affect the company's borrowing costs and the degree of difficulty,and overconfidence managers prefer debt financing.Companies with high debt capacity are more likely to get low cost and disposable debt capital of low limit.So in the decision of acquisition,manager overconfidence's enterprises of large debt capacity are more prone to excessive payment behavior.According to the research results,this paper puts forward four suggestions:the first is to improve the company's internal governance mechanism and limit the control of managers;the second is to strengthen the occupation moral education for management,in order to establish a good mechanism for learning;the third is to improve the performance evaluation and incentive mechanism and reduce blindness management;the last one is establish supervision mechanism to improve the decision-making of the creditors of enterprise managers.