Managerial Overconfidence in High and Low Valuation Markets and Gains to Acquisitions

Croci, Ettore; Petmezas, Dimitris; Vagenas-Nanos, Evangelos

Abstract

In this paper we empirically investigate bidders' performance managed by overconfident and non-overconfident managers in high and low market valuation periods. Using a sample of UK acquisitions in the period 1990–2005, we provide evidence that the interaction between market valuation and different behavioral traits of managers is a determinant of bidders' returns. In contrast to overconfident managers, non-overconfident managers conduct value-creative acquisition deals in all valuation periods. In addition, when we control for acquirer and deal characteristics, we find that bidders with non-overconfident managers gain the most in high valuation periods, while firms are better off without overconfident managers in any type of market conditions.

• Journal Article Type: Article
• Acceptance Date: Jun 29, 2010
• Online Publication Date: Jul 6, 2010
• Publication Date: 2010-12
• Deposit Date: Aug 2, 2020
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 19
• Issue: 5
• Pages: 368-378
• DOI: https://doi.org/10.1016/j.irfa.2010.06.003
• Public URL: https://durham-repository.worktribe.com/output/1295566