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Title: The impact of CEO Hubris on mergers and acquisitions transactions : frequency and earnings management
Author: Betelmal, Nahla
Awarding Body: Glasgow Caledonian University
Current Institution: Glasgow Caledonian University
Date of Award: 2014
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The behavioural corporate finance literature highlights that value-destroying Mergers and Acquisitions (M&A) could be driven by managerial hubris (i.e. excessive overconfidence) due to unrealistic optimism about both future performance and managerial abilities and skills to extract value (see: Malmendier and Tate, 2008; Hayward and Hambrick, 1997; Roll, 1986). Moreover, overconfident Chief Executive Officers (CEOs) were found to be more likely to smooth earnings, manage earnings via accruals, and commit financial fraud than average, in order to meet or beat their own optimistic expectations and the analysts' forecasts (see: Bouwman, 2014; Schrand and Zechman, 2012; Hribar and Yang, 2010). Our empirical results from studying the US market during the period from 1993 to 2010 show that hubristic CEOs have 37 per cent higher odds of engaging in corporate takeovers than rational CEOs. Hubristic bidders have higher odds when the firm is overvalued (odds ratio of 1.28); whencthe industry is heated (odds ratio of 1.63), and, when a growth opportunity presents itself (odds ratio of 1.70) relative to rational bidders who have a 1.17 odds ratio when their firm is overvalued, and a 1.66 odds ratio when there is a growth opportunity. All bidders manage earnings via accruals and real activities manipulation in the year prior to the announcement, and they use classification shifting in the year following the announcement. However, the preferred tool is different: rational bidders engage more in accrual earnings management, while hubristic bidders use real activities manipulation and classification shifting more aggressively. Overall, the magnitude of earnings management is higher for bidders classified as hubristic. This thesis applies the Campbell et at. (2011) measurement of CEO excessive overconfidence that was inspired by the work of Malmendier and Tate (2008; 2005a).
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available