The Impact of Market-Nurtured Optimism on Mergers:

Pei Gi Shu, Yin-Hua Yeh, Shean Bii Chiu, Li Hui Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We create a novel measure of market-nurtured optimism in that managers become more optimistic if the market had responded more favorably, and to a larger extent to positive earnings surprises, than to negative earnings surprises. These market-nurtured managers are prone to engage in value-destructive mergers. The inclination is further reinforced by abundant internal cash. In contrast, a good governance structure mitigates the odds of engaging in mergers and the detrimental effect associated with mergers. The acquisitions launched by overconfident managers are associated with lower market value.

Original languageEnglish
Article number1350021
JournalReview of Pacific Basin Financial Markets and Policies
Volume16
Issue number3
DOIs
StatePublished - 1 Sep 2013

Keywords

  • Overconfidence
  • corporate governance
  • mergers

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