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External Factors’ Effect on CEO Overconfidence in Mergers and Acquisitions: Board Composition and Monitoring

Johansson, Joel LU and Olvebrink, Jesper LU (2013) FEKN90 20131
Department of Business Administration
Abstract
Purpose: The purpose of this report is to examine the presence of CEO overconfidence in Sweden, and how monitoring of the board of directors affects the overconfidence in CEOs in Sweden.

Methodology: Two proxies were used to measure overconfidence: OC1 which measured CEO insider trading, and OC2 which measured CEO portrayal in media. A multivariate regression using the ordinary least squares method was performed on the data sample.

Theoretical perspectives: This study is influenced by previous published articles related to CEO overconfidence and the board of directors’ role as a monitoring organ. These articles include the works of Malmendier & Tate, Doukas & Petmezas, Brown & Sarma and several others.

Empirical foundation: A main... (More)
Purpose: The purpose of this report is to examine the presence of CEO overconfidence in Sweden, and how monitoring of the board of directors affects the overconfidence in CEOs in Sweden.

Methodology: Two proxies were used to measure overconfidence: OC1 which measured CEO insider trading, and OC2 which measured CEO portrayal in media. A multivariate regression using the ordinary least squares method was performed on the data sample.

Theoretical perspectives: This study is influenced by previous published articles related to CEO overconfidence and the board of directors’ role as a monitoring organ. These articles include the works of Malmendier & Tate, Doukas & Petmezas, Brown & Sarma and several others.

Empirical foundation: A main sample consisting of 375 overconfident acquisitions was constructed from all acquisitions performed by Swedish companies during the time period 2000 to 2007. From this a sub sample was created of which 86 CEOs displaying overconfidence from at least one of the two proxies.

Conclusions: This study shows that outside directors have a very effective mean of curtailing observed overconfidence in CEOs. The variables for the CEOs- and employee representatives’ presence on the board of directors was found to be statistically insignificant and with a low effect on observed CEO overconfidence. (Less)
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author
Johansson, Joel LU and Olvebrink, Jesper LU
supervisor
organization
course
FEKN90 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Overconfidence, Behavioral Finance, Monitoring, Cross-Sectional Regression, Corporate Governance
language
English
id
3910259
date added to LUP
2013-06-27 11:32:00
date last changed
2013-06-27 11:32:00
@misc{3910259,
  abstract     = {Purpose: The purpose of this report is to examine the presence of CEO overconfidence in Sweden, and how monitoring of the board of directors affects the overconfidence in CEOs in Sweden.

Methodology: Two proxies were used to measure overconfidence: OC1 which measured CEO insider trading, and OC2 which measured CEO portrayal in media. A multivariate regression using the ordinary least squares method was performed on the data sample.

Theoretical perspectives: This study is influenced by previous published articles related to CEO overconfidence and the board of directors’ role as a monitoring organ. These articles include the works of Malmendier & Tate, Doukas & Petmezas, Brown & Sarma and several others.

Empirical foundation: A main sample consisting of 375 overconfident acquisitions was constructed from all acquisitions performed by Swedish companies during the time period 2000 to 2007. From this a sub sample was created of which 86 CEOs displaying overconfidence from at least one of the two proxies.

Conclusions: This study shows that outside directors have a very effective mean of curtailing observed overconfidence in CEOs. The variables for the CEOs- and employee representatives’ presence on the board of directors was found to be statistically insignificant and with a low effect on observed CEO overconfidence.},
  author       = {Johansson, Joel and Olvebrink, Jesper},
  keyword      = {Overconfidence,Behavioral Finance,Monitoring,Cross-Sectional Regression,Corporate Governance},
  language     = {eng},
  note         = {Student Paper},
  title        = {External Factors’ Effect on CEO Overconfidence in Mergers and Acquisitions: Board Composition and Monitoring},
  year         = {2013},
}