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Using a large sample of over 1,900 M&A deals from 1993 to 2005, and data on more than 3,100 CEOs, the authors explore merger and acquisition activities from a behavioral perspective, and provide another explanation of M&A motives and firm stock performance. They empirically test if overconfident CEOs are more likely to conduct mergers than rational CEOs. They also examine the impact of CEO overconfidence bias on market reaction to firm M&A announcements, and also long-term post-M&A stock returns. Three proxies for CEO overconfidence are used in this study: the option-based Holder67 measure, CEO media portrayal, and content analysis of CEO speech. They find evidence that overconfident CEOs are more likely to conduct mergers and acquisitions than economically rational CEOs.
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