1 Introduction
2 Literature review
2.1 Gender differences and overconfidence
2.2 Managerial overconfidence and M&A
2.3 Empirical evidence on merger characteristics
3 Hypotheses development
3.1 Overconfidence and gender
3.2 Overconfidence and self-attribution bias
3.3 Overconfidence and merger characteristics
4 Data and methodology
4.1 Sample and data sources
Type of acquisition | Number of acquisitions | Mean transaction value (£ million) | Median transaction value (£ million) | Cash | Stock | Mixed | Related | Diversifying | Deal size/bidder’s market capitalization |
---|---|---|---|---|---|---|---|---|---|
Panel A | |||||||||
N | N | N | N | N | N | N | |||
All deals | 754 | 158.1 | 38.5 | 316 | 136 | 293 | 250 | 504 | 0.0624 |
Private | 744 | 156.8 | 38.3 | 311 | 136 | 289 | 247 | 497 | 0.0625 |
Public | 10 | 253.4 | 41.7 | 5 | 0 | 4 | 3 | 7 | 0.0503 |
Single | 331 | 226.5 | 59.4 | 116 | 70 | 145 | 133 | 198 | 0.0640 |
Multiple | 423 | 111.8 | 31.7 | 200 | 66 | 148 | 117 | 306 | 0.0468 |
Deal value > 20 million | 497 | 234.89 | 79.8 | 213 | 90 | 186 | 153 | 344 | 0.0883 |
Number of acquisitions | Mean | Median | Standard deviation | Max | Min | |
---|---|---|---|---|---|---|
Panel B | ||||||
Fraction of male directors | 754 | 0.78 | 0.72 | 0.05 | 1 | 0.62 |
CEO duality | 754 | 0.24 | 0 | 0.062 | 1 | 0 |
Board size | 754 | 9.2 | 9 | 0.045 | 15 | 6 |
Board independence | 754 | 5.31 | 5 | 0.11 | 24 | 2 |
Tobin's Q | 754 | 0.65 | 0.68 | 0.07 | 0.87 | 0.21 |
Leverage | 754 | 22.1 | 35.3 | 0.3 | 83.7 | 0 |
Year of completion | No. of acquirers | Single (S) | Multiple (M) | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
S | M | C | Sk | Mx | R | D | C | Sk | Mx | R | D | |||||||||||
N | % | N | % | N | % | N | % | N | % | N | % | N | % | N | % | N | % | N | % | |||
2018 | 10 | 11 | 8 | 9 | 2 | 3 | 0 | 0 | 2 | 2 | 6 | 5 | 5 | 2 | 3 | 4 | 3 | 3 | 5 | 4 | 6 | 2 |
2017 | 14 | 10 | 9 | 10 | 2 | 3 | 3 | 2 | 4 | 4 | 10 | 8 | 6 | 3 | 0 | 0 | 4 | 4 | 3 | 2 | 7 | 2 |
2016 | 16 | 22 | 6 | 6 | 5 | 8 | 5 | 4 | 9 | 8 | 2 | 2 | 17 | 8 | 2 | 3 | 3 | 3 | 6 | 5 | 16 | 5 |
2015 | 9 | 49 | 4 | 4 | 3 | 5 | 2 | 2 | 2 | 2 | 7 | 6 | 34 | 16 | 4 | 5 | 11 | 11 | 8 | 6 | 41 | 12 |
2014 | 19 | 32 | 8 | 9 | 3 | 5 | 8 | 6 | 9 | 8 | 3 | 2 | 15 | 7 | 4 | 5 | 13 | 13 | 9 | 7 | 23 | 7 |
2013 | 15 | 36 | 5 | 5 | 5 | 8 | 5 | 4 | 8 | 7 | 7 | 6 | 17 | 8 | 4 | 5 | 15 | 15 | 6 | 5 | 30 | 9 |
2012 | 16 | 41 | 9 | 10 | 2 | 3 | 5 | 4 | 7 | 6 | 4 | 3 | 27 | 13 | 7 | 9 | 7 | 7 | 12 | 9 | 29 | 9 |
2011 | 18 | 40 | 7 | 8 | 7 | 12 | 4 | 3 | 7 | 6 | 11 | 9 | 19 | 9 | 8 | 11 | 13 | 13 | 11 | 9 | 29 | 9 |
2010 | 12 | 30 | 4 | 4 | 4 | 7 | 4 | 3 | 4 | 4 | 5 | 4 | 15 | 7 | 5 | 7 | 10 | 10 | 10 | 8 | 20 | 6 |
2009 | 11 | 22 | 3 | 3 | 0 | 0 | 8 | 6 | 7 | 6 | 4 | 3 | 8 | 4 | 7 | 9 | 7 | 7 | 7 | 5 | 15 | 4 |
2008 | 26 | 40 | 7 | 8 | 8 | 13 | 11 | 9 | 9 | 8 | 6 | 5 | 7 | 3 | 7 | 9 | 14 | 14 | 11 | 9 | 29 | 9 |
2007 | 37 | 34 | 10 | 11 | 9 | 15 | 18 | 14 | 21 | 18 | 16 | 13 | 14 | 7 | 6 | 8 | 13 | 13 | 10 | 8 | 24 | 7 |
2006 | 25 | 27 | 3 | 3 | 4 | 7 | 18 | 14 | 8 | 7 | 7 | 6 | 9 | 4 | 4 | 5 | 15 | 15 | 14 | 11 | 13 | 4 |
2005 | 21 | 31 | 4 | 4 | 3 | 5 | 12 | 10 | 6 | 5 | 15 | 12 | 9 | 4 | 4 | 5 | 17 | 17 | 8 | 6 | 23 | 7 |
2004 | 19 | 22 | 4 | 4 | 3 | 5 | 12 | 10 | 11 | 10 | 8 | 7 | 5 | 2 | 6 | 8 | 11 | 11 | 5 | 4 | 17 | 5 |
2003 | 2 | 11 | 1 | 1 | 0 | 0 | 1 | 1 | 0 | 0 | 2 | 2 | 5 | 2 | 5 | 7 | 1 | 1 | 3 | 2 | 8 | 2 |
2002 | 10 | 6 | 1 | 1 | 0 | 0 | 9 | 7 | 0 | 0 | 9 | 7 | 3 | 1 | 0 | 0 | 3 | 3 | 1 | 1 | 5 | 1 |
Totals | 280 | 464 | 93 | 100% | 60 | 100% | 99 | 100% | 114 | 100% | 101 | 100% | 215 | 100% | 76 | 100% | 160 | 100% | 129 | 100% | 335 | 100% |
4.2 Measurement of short-term announcement period returns
4.3 Measurement of long-run performance
4.3.1 Buy-and-hold abnormal return
4.3.1.1 Size and market-to-book value matched control firm for calculating BHAR
4.3.1.2 Propensity score-matched control firm for calculating BHAR
4.4 Determinants of M&A returns
Variable name | Definition |
---|---|
Dependent variable | |
CAR (− 1, + 1) | Cumulative Abnormal Returns of the acquiring firms in the 3 days window of the announcement of M&A |
CAR (− 2, + 2) | Cumulative Abnormal Returns of the acquiring firms in the 5 days window of the announcement of M&A |
BHAR 12 | 12 months Buy and Hold Abnormal Returns following the date of merger completion |
BHAR 24 | 24 months Buy and Hold Abnormal Returns following the date of merger completion |
Independent variables | |
Fraction of male directors | Number of male directors in the board divided by board size |
Multiple | Dummy variable that takes the of value of 1 if the firm has completed five or more acquisitions within three years of the first acquisition |
Cash | Dummy variable that takes the value of 1 if cash is used as the method of payment and 0 otherwise |
Stock | Dummy variable that takes the value of 1 if stock is used as the method of payment and 0 otherwise |
Related | Dummy variables that takes the value of 1if the merger has taken place within the same industry and 0 otherwise |
Control variables | |
CEO duality | Dummy variable that takes the value of 1 if the CEO is also the Chairman of the firm and 0 otherwise |
Board size | Number of total directors on the board |
Board independence | Number of independent directors |
TobinsQ | A market-based measure which is measured as the book value of total assets minus the book value of common equity plus the market value of common equity divided by the book value of total assets |
Leverage | A ratio measuring total debt to total assets |
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
CAR (− 1, + 1) | 1 | |||||||||||||
CAR (− 2, + 2) | 0.4 | 1 | ||||||||||||
BHAR 12 | 0.015 | 0.025 | 1 | |||||||||||
BHAR 24 | 0.032 | 0.027 | 0.043 | 1 | ||||||||||
Fraction of male directors | 0.021 | 0.018 | 0.031 | 0.019 | 1 | |||||||||
Multiple | − 0.27 | − 0.24* | 0.03 | − 0.21* | − 0.076 | 1 | ||||||||
Cash | − 0.04 | − 0.16 | − 0.18* | − 0.2* | 0.013 | 0.134 | 1 | |||||||
Stock | 0.026 | 0.031 | 0.016 | 0.018 | 0.051 | − 0.68** | 0.21 | 1 | ||||||
Related | 0.016 | 0.018 | 0.002 | 0.011 | − 0.11* | 0.143 | 0.05 | 0.067 | 1 | |||||
CEO duality | 0.24*** | 0.28** | − 0.16* | − 0.15* | − 0.021 | 0.015 | 0.024 | 0.018 | 0.27 | 1 | ||||
Board size | 0.021 | 0.026* | 0.007 | 0.034* | 0.16 | − 0.12 | − 0.026 | 0.066** | − 0.051 | 0.06** | 1 | |||
Board independence | 0.23* | 0.18* | 0.25* | 0.09 | 0.44 | 0.02 | − 0.19 | 0.12 | 0.34 | − 0.17* | 0.42* | 1 | ||
Tobin's Q | 0.19 | 0.21 | 0.16 | 0.14 | 0.07** | 0.145 | 0.14 | 0.02 | 0.17 | − 0.031** | − 0.22** | 0.27 | 1 | |
Leverage | − 0.03 | − 0.025 | − 0.012 | − 0.026 | 0.18 | 0.017 | 0.02 | − 0.19 | − 0.16 | 0.016 | 0.011 | − 0.024 | 0.08** | 1 |
5 Results and discussions
5.1 Univariate analyses
5.1.1 Merger performance and overconfidence measured by fraction of male directors
CAAR (− 1, + 1) | CAAR (− 2, + 2) | SIZE and MV/BV matched BHAR | Propensity score matched BHAR | |||
---|---|---|---|---|---|---|
ABHAR 12 | ABHAR 24 | ABHAR 12 | ABHAR 24 | |||
Panel A | ||||||
All sample | 1.05%*** | 0.98%*** | − 3.5%*** | − 2.75%** | − 2.76%** | − 2.34%** |
(3.19) | (3.15) | (− 3.89) | (− 2.56) | (− 2.59) | (− 2.27) | |
Panel B | ||||||
Fraction of male directors > mean | 0.22%*** | 0.28%*** | − 3.21%*** | − 3.37%*** | − 2.68%** | − 2.45%*** |
(2.15) | (2.19) | (− 3.75) | (− 3.86) | (− 2.53) | (− 3.62) | |
Fraction of male directors < mean | 0.88%* | 0.76%* | − 1.69%* | − 1.62%* | − 1.54%* | − 1.55%*) |
(1.39) | (1.32) | (− 1.54) | (− 1.51) | (− 1.47) | (− 2.47) | |
Mean difference p values | − 0.66%** | − 0.48%*** | − 1.52%** | − 1.75%* | − 1.14%** | 0.9%* |
(0.02) | (0.014) | (0.035) | (0.062) | (0.012) | (0.014) | |
Panel C | ||||||
Single | 1.38%*** | 1.44%*** | − 2.27%*** | − 2.05%*** | − 2.07%** | − 1.98%*** |
(3.29) | (3.3) | (− 2.50) | (− 2.31) | (− 2.14) | (− 2.27) | |
Multiple | 0.81%** | 0.84%** | − 3.48%*** | − 3.43%*** | − 3.37%*** | − 3.25%*** |
(2.51) | (2.56) | (− 2.73) | (− 2.95) | (− 2.68) | (− 2.76) | |
Mean difference p values | 0.6%** | 0.60%*** | 1.21%** | 1.38%* | 1.3%*** | 1.27%*** |
(0.041) | (0.007) | (0.02) | (0.09) | (− 0.017) | (0.013) | |
Panel D | ||||||
Cash | 0.95%** | 0.86%*** | − 2.88%*** | − 2.91%*** | − 2.73%*** | − 2.85%*** |
(1.38) | (1.26) | (− 2.94) | (− 3.01) | (− 2.86) | (− 2.94) | |
Stock | 1.78%** | 1.96%** | − 1.53%** | − 1.61%** | − 1.59%** | − 1.57%** |
(0.82) | (0.89) | (− 1.75) | (− 1.81) | (− 1.71) | (− 1.73) | |
Mean difference p values | − 0.83%** | − 1.1%** | − 1.35%** | − 1.3%** | − 1.14%** | − 1.28%** |
(0.028) | (0.03) | (0.036) | (0.028) | (0.025) | (0.024) | |
Panel E | ||||||
Diversifying | 1.27%*** | 1.31%*** | − 3.1%*** | − 3.17%*** | − 2.95%*** | − 2.46%*** |
(3.17) | (3.28) | (− 3.09) | (− 2.76) | (− 3.19) | (− 2.88) | |
Related | 1.48%** | 1.56%** | − 1.6%** | − 1.96%*** | − 1.67%** | − 1.73%*** |
(3.08) | (3.12) | (− 2.56) | (− 3.02) | (− 2.62) | (− 2.97) | |
Mean difference p values | − 0.21%** | − 0.25%** | − 1.5%** | − 1.21%** | − 1.28%** | − 0.73%** |
(0.038) | (0.043) | (0.02) | (0.024) | (0.02) | (0.024) |
5.1.2 Merger performance and overconfidence measured by merger frequencies
5.1.3 Merger performance and overconfidence measured by merger characteristics
CAAR (− 1, + 1) | All | CAAR (− 2, + 2) | All |
---|---|---|---|
Panel A | |||
Multiple acquirer: 1st deal | 1.21%** | Multiple acquirer: 1st deal | 1.81%*** |
(2.65) | (3.41) | ||
No. of deals | 84 | No. of deals | 80 |
Multiple acquirers: 5 or more deals | 0.58%*** | Multiple acquirers: 5 or more deals | 0.53%*** |
(3.72) | (3.67) | ||
No. of deals | 173 | No. of deals | 172 |
Mean difference p values | 0.63%** | Mean difference p values | 1.28%*** |
(0.014) | (0.008) |
12-month ABHAR | All | 24-month ABHAR | All |
---|---|---|---|
Panel B | |||
Multiple acquirer: 1st deal | − 3.08%* | Multiple acquirer: 1st deal | − 3.12%*** |
(− 1.36) | (− 2.26) | ||
No. of deals | 49 | No. of deals | 41 |
Multiple acquirers: 5 or more deals | − 3.45%*** | Multiple acquirers: 5 or more deals | − 3.48%*** |
(− 3.32) | (− 2.96) | ||
No. of deals | 271 | No. of deals | 271 |
Mean difference p values | 0.37% | Mean difference p values | 0.36% |
(0.04) | (0.02) |
5.2 Multiple regression results
Panel A | Panel B | Panel C | Panel D | Panel E | Panel F | Panel G | Panel H | |
---|---|---|---|---|---|---|---|---|
CAR (− 1, + 1) | CAR (− 1, + 1) | CAR (− 2, + 2) | CAR (− 2, + 2) | BHAR 12 | BHAR 12 | BHAR 24 | BHAR 24 | |
Independent variables | ||||||||
Fraction of male directors | − 1.85*** | − 2.22*** | − 1.45*** | − 1.52*** | − 1.77*** | − 1.69** | − 2.83*** | − 2.78*** |
(− 3.16) | (− 3.34) | (− 3.23) | (− 3.31) | (− 3.42) | (− 2.75) | (− 3.61) | (− 3.55) | |
Multiple | − 1.38*** | − 1.35*** | − 1.29*** | − 1.31*** | − 1.37** | − 1.51** | − 1.45** | − 1.56** |
(− 3.29) | (− 3.24) | (− 3.15) | (− 3.18) | (− 2.57) | (− 2.64) | (− 2.93) | (− 2.99) | |
Fraction of male directors*Multiple | − 1.28** | − 1.23** | − 1.26** | − 1.37** | ||||
(− 2.69) | (− 2.48) | (− 2.53) | (− 2.81) | |||||
Cash | − 1.36 | − 1.47 | − 1.28 | − 1.42 | − 0.89 | − 0.94 | − 0.91 | − 0.97 |
(− 0.64) | (− 0.78) | (− 0.59) | (− 0.72) | (− 0.75) | (− 0.81) | (− 0.78) | (− 0.86) | |
Stock | 0.17 | 0.12 | 0.21 | 0.18 | 0.15* | 0.22* | 0.12* | 0.17* |
(0.92) | (0.79) | (1.02) | (0.85) | (1.78) | (1.85) | (1.73) | (1.77) | |
Related | 0.89** | 0.93** | 0.92** | 0.97** | 0.21*** | 0.28*** | 0.17*** | 0.19*** |
(2.51) | (2.52) | (2.56) | (2.64) | (3.52) | (3.56) | (3.42) | (3.47) | |
Control variables | ||||||||
CEO duality | − 1.19 | − 1.22 | − 1.32 | − 1.37 | − 1.93** | − 1.95** | − 2.11** | − 2.18** |
(− 0.96) | (0.98) | (− 1.11) | (− 1.18) | (− 2.22) | (− 2.28) | (− 2.43) | (− 2.48) | |
Board size | 0.021 | 0.027 | 0.015 | 0.019 | 0.012 | 0.017 | 0.026 | 0.021 |
(0.68) | (0.75) | (0.59) | (0.64) | (0.38) | (0.43) | (0.49) | (0.37) | |
Board Independence | 0.45** | 0.52** | 0.47** | 0.52** | 0.49** | 0.56** | 0.41** | 0.38** |
(2.46) | (2.56) | (2.49) | (2.55) | (2.52) | (2.59) | (3.02) | (2.95) | |
Tobin's Q | 0.58 | 0.52 | 0.48 | 0.51 | 0.93*** | 0.89*** | 0.93*** | 0.98*** |
(0.87) | (0.81) | (0.79) | (0.82) | (3.45) | (3.38) | (3.41) | (3.47) | |
Leverage | − 1.92 | − 1.91 | − 1.91 | − 1.87 | − 2.16** | 2.09** | − 2.16** | − 2.24** |
(− 1.11 | (− 1.12) | (− 1.16) | (− 1.13) | (− 2.22) | (− 2.17) | (− 2.34) | (− 2.39) | |
Constant | 1.41*** | 1.45*** | 1.41*** | 1.52*** | − 0.48*** | − 0.42*** | − 0.73*** | − 0.76*** |
(3.57) | (3.62) | (3.61) | (3.68) | (3.37) | (3.33) | (3.52) | (3.57) | |
R squared | 0.65 | 0.61 | 0.57 | 0.61 | 0.64 | 0.56 | 0.68 | 0.65 |
No. of observations | 725 | 725 | 725 | 725 | 693 | 693 | 690 | 690 |
5.3 Robustness tests
Panel A | Panel B | |
---|---|---|
BHAR 12 | BHAR 24 | |
Independent variables | ||
Fraction of male directors | − 2.67** | − 2.59** |
(− 2.95) | (− 2.73) | |
Multiple | − 1.42** | − 1.51** |
(− 2.89) | (− 2.93) | |
Fraction of male directors*Multiple | − 1.35** | |
(− 2.75) | ||
Cash | − 0.84 | − 0.93 |
(− 0.72) | (− 0.81) | |
Stock | 0.16* | 0.22* |
(1.78) | (1.82) | |
Related | 0.24*** | 0.27*** |
(3.58) | (3.61) | |
Control variables | ||
CEO duality | − 2.16** | − 2.25** |
(− 2.46) | (− 2.51) | |
Board size | 0.021 | 0.017 |
(0.43) | (0.35) | |
Board independence | 0.48** | 0.51** |
(3.10) | (3.15) | |
Tobin's Q | 0.98*** | 0.92*** |
(3.47) | (3.39) | |
Leverage | − 2.26** | − 2.29** |
(− 2.47) | (− 2.52) | |
Constant | − 0.66** | − 0.83** |
(2.73) | (2.91) | |
R squared | 0.72 | 0.76 |
No. of observations | 684 | 684 |