Literature Review Women on boards and in TMTS and firm performance88 4 2 3 Sources of CEO overconfidence Hayward and Hambrick 1997 identify four main sources for CEO overconfidence First eviden ce suggests that firm performance is attributed to the organization s CEO Not only will the CEO himself likely claim full credit for good firm per formance Gervais Odean 2001 but it will also be credited to him externally Recent organizatio nal successes will encourage CEO overconfidence and inter organizational prestige D Aveni 1990 Hayward Hambrick 1997 Meindl Ehrlich Du kerich 1985 Interestingly this holds true even when the successes could more objectively be at tributed to other reasons At the same time poor performance is also attributed to the CEO thus adversely affecting CEO s power and confidence Hayward Hambrick 1997 Second favorable attributions are also made by the media Media praise will further foster CEO overconfidence Hay ward Hambrick 1997 Malmendier Tate 2009 Meindl et al 1985 A third source is the CEO s self importance The better than average effect is particularly pronounced the evaluation of his or her own abilities distorted Hayward Hambrick 1997 The fourth factor is weak board vigilance This can be assumed for instance when duality of chairman and CEO position is given or the pro portion of insiders on the board is high Hayward Hambrick 1997 4 2 4 Potential effects on acquisition activity The concept of managerial overconfidence was in itially introduced by Roll 1986 and for a long pe riod of time stated as a reason for failed mergers Takeovers in Roll s view reflect individual decisi ons He finds that acquiring firms on average pay too high a price for their target At least part of the paid premiums could be caused by valuation errors and hubris The bidder being too optimistic about potential synergies may justify the premi um to himself by attributing a higher value to the combined firm Roll termed this phenomenon the hubris hypothesis of corporate takeovers 6 The hypothesis predicts that managerial hubris will lead to heightened acquisitiveness with zero in crease in value for both bidder and target as the target s rising share price is compensated by the bidder s falling share price Empirical evidence indicates that gender appe ars to be a relevant factor when discussing over confidence e g Barber Odean 2011 Huang Kisgen 2013 Levi Li Zhang 2014 Huang and Kisgen 2013 for instance examine corporate financial and investment decisions Their eviden ce suggests that male executives exhibit relative overconfidence compared with female executives Men undertake more acquisitions and issue debt more often than women Moreover announce ment returns to acquisitions and debt issues made by firms with male executives are lower than to those made by firms with female executives The findings of Levi et al 2014 suggest that female directors being less overconfident less overesti mate merger gains As a consequence companies with female directors are less likely to make ac quisitions In case these firms acquire they pay lower bid premia Levi et al 2014 Moreover the size of bid premia are highly as sociated with the four indicators of CEO overcon fidence namely the recent performance of the acquiring company recent media praise for the CEO a measure of the CEO s self importance and the combination of these three factors Hayward Hambrick 1997 Poor monitoring through the board of directors further strengthens the relati onship between CEO hubris and paid bid premia particularly when the proportion of inside direc tors is high Hayward Hambrick 1997 6 Forbes 2009 provides a deeper insight into the field with his case study Hubris at Work The AOL Time Warner Merger CEO optimism and overconfidence

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 88
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