CEO overconfidence and bondholder wealth effects: Evidence from mergers and acquisitions

Sheng Syan Chen; Keng Yu Ho; Po Hsin Ho; Wei Ying Nie

doi:10.1016/j.jcorpfin.2022.102278

CEO overconfidence and bondholder wealth effects: Evidence from mergers and acquisitions

Sheng Syan Chen, Keng Yu Ho, Po Hsin Ho, Wei Ying Nie

Department of Finance

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

This study explores the influence of chief executive officer (CEO) overconfidence on acquirer bondholder wealth in mergers from 1994 to 2019. We find that CEO overconfidence benefits acquirer bondholders. Overconfident CEOs are likely to choose targets with lower return correlations rather than targets with lower risk than acquirers. We further show there is a positive wealth effect during announcement periods as well as firm risk reduction and a positive long-run bond market reaction subsequent to merger completion when overconfident acquirers merge with targets that are less correlated. Overall, the coinsurance effect dominates the liquidity effect on overconfident acquirer bondholder wealth during a merger.

Original language	English
Article number	102278
Journal	Journal of Corporate Finance
Volume	77
DOIs	https://doi.org/10.1016/j.jcorpfin.2022.102278
State	Published - Dec 2022

Keywords

Bondholder wealth effect
CEO overconfidence
Coinsurance effect

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10.1016/j.jcorpfin.2022.102278

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title = "CEO overconfidence and bondholder wealth effects: Evidence from mergers and acquisitions",

abstract = "This study explores the influence of chief executive officer (CEO) overconfidence on acquirer bondholder wealth in mergers from 1994 to 2019. We find that CEO overconfidence benefits acquirer bondholders. Overconfident CEOs are likely to choose targets with lower return correlations rather than targets with lower risk than acquirers. We further show there is a positive wealth effect during announcement periods as well as firm risk reduction and a positive long-run bond market reaction subsequent to merger completion when overconfident acquirers merge with targets that are less correlated. Overall, the coinsurance effect dominates the liquidity effect on overconfident acquirer bondholder wealth during a merger.",

keywords = "Bondholder wealth effect, CEO overconfidence, Coinsurance effect",

author = "Chen, {Sheng Syan} and Ho, {Keng Yu} and Ho, {Po Hsin} and Nie, {Wei Ying}",

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T1 - CEO overconfidence and bondholder wealth effects

T2 - Evidence from mergers and acquisitions

AU - Chen, Sheng Syan

AU - Ho, Keng Yu

AU - Ho, Po Hsin

AU - Nie, Wei Ying

PY - 2022/12

Y1 - 2022/12

N2 - This study explores the influence of chief executive officer (CEO) overconfidence on acquirer bondholder wealth in mergers from 1994 to 2019. We find that CEO overconfidence benefits acquirer bondholders. Overconfident CEOs are likely to choose targets with lower return correlations rather than targets with lower risk than acquirers. We further show there is a positive wealth effect during announcement periods as well as firm risk reduction and a positive long-run bond market reaction subsequent to merger completion when overconfident acquirers merge with targets that are less correlated. Overall, the coinsurance effect dominates the liquidity effect on overconfident acquirer bondholder wealth during a merger.

AB - This study explores the influence of chief executive officer (CEO) overconfidence on acquirer bondholder wealth in mergers from 1994 to 2019. We find that CEO overconfidence benefits acquirer bondholders. Overconfident CEOs are likely to choose targets with lower return correlations rather than targets with lower risk than acquirers. We further show there is a positive wealth effect during announcement periods as well as firm risk reduction and a positive long-run bond market reaction subsequent to merger completion when overconfident acquirers merge with targets that are less correlated. Overall, the coinsurance effect dominates the liquidity effect on overconfident acquirer bondholder wealth during a merger.

KW - Bondholder wealth effect

KW - CEO overconfidence

KW - Coinsurance effect

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DO - 10.1016/j.jcorpfin.2022.102278

M3 - 期刊論文

AN - SCOPUS:85138652193

SN - 0929-1199

VL - 77

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

M1 - 102278

ER -

CEO overconfidence and bondholder wealth effects: Evidence from mergers and acquisitions

Abstract

Keywords

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