Over at the Harvard Law School Forum on Corporate Governance and Financial Regulation, there’s a an interesting post about an extraordinary study published in the Journal of Financial and Quantitative Analysis.
In the study, CEO Overconfidence and International Merger and Acquisition Activity, the authors use a sample of CEOs from Fortune Global 500 firms to examine how CEO overconfidence is related to a number of critical aspects of international merger activity.
According to the study, overconfidence helps to explain the number of offers made by a CEO, the frequency of diversifying acquisitions, and the use of cash to finance a merger deal.
The authors conclude that although overconfidence is an international phenomenon, it is most extensively observed in individuals heading firms headquartered in western countries that encourage individualism while de-emphasizing long-term orientation in their national cultures.
The study is worth a read and part of the nascent literature establishing the importance of human psychological characteristics in understanding corporate decision-making.
What do you think?
You can read the study below: