Does CEO overconfidence help to explain merger decisions? Overconfident CEOs overestimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs' personal overinvestment in their company and their press portrayal. We find that the odds of making an acquisition are 65 % higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (–90 basis points) is significantly more negative than for non-overconfident CEOs (–12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance.

This paper studies redeployment of resources between target and acquiring businesses following horizontal acquisitions. The analysis draws from perspectives that emphasize the strategic importance of resources that are subject to market failure. We define a five-part typology of R&D, manufacturing, marketing, managerial, and financial resources. We show that targets and acquirers frequently redeploy resources following horizontal acquisitions, especially resources that frequently face market failure. We then show that the magnitude of redeployment of each type of resource increases with the asymmetry of the merging businesses ’ relative strength on the resource dimension. The research stresses evolutionary perspectives on business organizations that emphasize the importance of organizational differences in competitive markets. The central premise of our research is that the market for businesses is often more robust than the market for resources. © 1998 John Wiley & Sons, Ltd. Strat. Mgmt. J. Vol. 19, 631–661 (1998)

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We find evidence of “local bias ” in the acquisition decisions of U.S public firms. Over the period 1990-2003, 18.8 % transactions were local, where the acquirer and the target are within 100 kms of each other. The expected probability that a target would be acquired by a public firm that operates in the same industry and is located within 100 kms is, however, only 6.2 percent. Further, acquirer returns in local transaction are a significant 56 % higher than that in non-local transactions. Our results also suggest that, information, rather than synergies, is more likely to be behind the superior performance of local acquirers. We add a new dimension – geography – to explain cross-sectional variation in acquirer returns.

I provide a synthesis of the Behavioural finance literature over the past two decades. I review the literature in three parts, namely, (i) empirical and theoretical analyses of patterns in the cross-section of average stock returns, (ii) studies on trading activity, and (iii) research in corporate finance. Behavioural finance is an exciting new field because it presents a number of normative implications for both individual investors and CEOs. The papers reviewed here allow us to learn more about these specific implications.

This paper documents a dramatic difference in the abnormal announcement period returns of the first bidder to announce an acquisition attempt in a particular industry. Typical of the literature, the set of all bidders in our sample earn abnormal returns indistinguishable from zero. However, bidders announcing an acquisition after a ‘dormant period ’ of at least a year without such activity in their industry, earn significantly positive abnormal returns of 0.8%. This contrasts with the insignificantly negative returns earned by bidders with shorter industry dormant periods. We also document that the prices of subsequent bidders adjust proportionately to returns of the initial bidder at the time of that initial announcement. In addition, bidder abnormal returns are significantly positively related to the length of the dormant period. These results provide strong evidence in support of the anticipation hypothesis. Our results hold after controlling for variables typically associated with bidding firm returns. 2 Anticipation Acquisitions and the Bidder Return Puzzle

I provide a synthesis of the behavioral finance literature over the past two decades. I review the literature in three parts, namely, (i) empirical and theoretical analyses of patterns in the cross-section of average stock returns, (ii) studies on trading activity, and (iii) research in corporate finance. Behavioral finance is an exciting new field because it presents a number of normative implications for both individual investors and CEOs. The papers reviewed here allow us to learn more about these specific implications.

1 st draft We examine the magnitude and determinants of acquiring shareholder returns using a sample of domestic and foreign acquisitions of UK firms during the period 1990-1998. We also assess the magnitude of combined wealth gains and their division using a paired sample of 219 targets and their acquirers. Targets of foreign bids have a lower PE ratio, have experienced lower sales growth and lower profitability growth but have greater cash reserves and higher R&D intensity vis a vis targets of domestic bids. Foreign acquirers are larger and have a higher level of intangible assets and R&D expenditure vis-à-vis UK bidders. Both targets of foreign bids and their acquirers differ to their domestic counterparts in that they are from more high tech industries. UK acquirers gain albeit insignificantly upon the takeover announcement being made in contrast to the small losses experienced by their foreign counterparts with US acquirers deem to fare worst. Combined wealth gains whilst on average are small, are larger when acquirers are from Continental Europe and when acquirers do not have a previous presence in the UK market. The determinants of acquirers value changes are found to include a mix of both target firms financial characteristics as well as bid features. Finally, a great volume of merger activity is witnessed in the 1995-1998 era compared to the 1990-94 period and we control for this in our analyses. Principal author:

This paper reviews the applications of auction theory to corporate finance. It starts with a review of the main auction theory frameworks and the major results. It then goes on to discuss how auction theory can be applied, in the context of the market for corporate control, not only to “inform” a company’s board or regulators, but also to understand some of the observed empirical evidence on target and bidder returns. It then considers the role of preemptive bidding, stock versus cash offers, the effect of toeholds on bidding behavior, the effect of bidder heterogeneity and discrimination in auctions, merger waves, bankruptcy auctions, share repurchases and “Dutch” auctions, IPO auctions, and the role of debt in auctions. It concludes with a

CEOs of the acquiring firms are more likely to cancel acquisitions when the market does not react favorably to the announcement (Luo, 2005). Using a sample of French acquisition announcements from 2000 to 2005, this paper studies the conditions under which CEOs are more willing to listen to investors. From the power typology of Finkelstein (1992), we find that CEOs with a high expertise listen to the market. Considering the strong networks of the French Elite Schools Alumni and board connections, we also find that the well-connected CEOs are more likely to complete a deal in spite of a negative market reaction on acquisition announcement. EFM Classification: 150, 160