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The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value

Year 2022, Volume: 30 Issue: 54, 101 - 119, 25.10.2022
https://doi.org/10.17233/sosyoekonomi.2022.04.05

Abstract

This study aims to examine the effect of overconfidence behaviours of the managers of the companies whose stocks are traded in Borsa Istanbul on the firm value. In the study, a model was created for Tobin q (Model 1), stock market value (Model 2) and enterprise value (Model 3). As a result of the study, a negative relationship was determined between the change in firm value and the overconfidence variable. According to this result, if the managers performing mergers and acquisitions are overconfident, the incorrect decision may be made while determining the firm value. This leads to a decrease in the wealth of the shareholders. In this respect, managers' overconfidence should also be considered while performing mergers and acquisitions in firms.

References

  • Adams, R.B. et al. (2005), “Powerful CEOs and their impact on corporate performance”, The Review of Financial Studies, 18(4), 1403-1432.
  • Ali, A.M. & J. Anis (2012), “CEO emotional bias and dividend policy: Bayesian network method”, Business and Economic Horizons (BEH), 7(1232-2016-101100), 1-18.
  • Asaoka, D. (2019), “Behavioral analysis of mergers and acquisitions decisions”, Corporate Board: Role, Duties and Composition, 15(3), 8-16.
  • Ayrıçay, Y. & V.E. Türk (2014), “Finansal oranlar ve firma değeri ı̇lişkisi: BİST’de bir uygulama”, Muhasebe ve Finansman Dergisi, (64), 53-70.
  • Baccar, A. et al. (2013), “Managerial optimism, overconfidence and board characteristics: towards a new role of corporate governance”, Australian Journal of Basic and Applied Sciences, 7(7), 287-301.
  • Baker, H.K. et al. (2012), “Are good performers bad acquirers?”, Financial Management, 41(1), 95-118.
  • Barber, B.M. & T. Odean (2001), “Boys will be boys: gender, overconfidence, and common stock investment”, The Quarterly Journal of Economics, 116(1), 261-292.
  • Barber, B.M. & T. Odean (2005), “Advances in behavioral finance”, in: R.H. Thaler (ed.), Individual Investors (Vol. 2) (443-469), Princeton University Press.
  • Barberies, N. & R. Thaler (2003), “Handbook of the economics of finance”, in: G.M. Constantinides et al. (eds), A Survey of Behavioral Finance (1052-1090), Elsevier Science B.V.
  • Beckhaus, G.M. (2013), “Comply or explain-a flexible mechanism to countervail behavioral biases in M&A transactions”, University of Miami Business Law review, 21(1), 183, 221.
  • Berlo, K. (2014), “The Influence of CEO and CFO Overconfidence on Earnings Management”, Master Thesis, Faculty of Economics and Business, The University of Amsterdam.
  • Bertrand, M. & A. Schoar (2003), “Managing with style: the effect of managers on firm policies”, The Quarterly Journal of Economics, 118(4), 1169-1208.
  • Billett, M.T. & Y. Qian (2005), “Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers”, <http://www.econ.yale.edu//~shiller/behfin/2005-11/qian-billett.pdf>, 16.09.2017.
  • Birgili, E. & M. Düzer (2010), “Finansal analizde kullanılan oranlar ve firma değeri ilişkisi: İMKB’de bir uygulama”, Muhasebe ve Finansman Dergisi, (46), 74-83.
  • Borghgraef, T. (2014), “Acquisition Motives and Methods of Financing”, Master Thesis, Ghent University.
  • Brown, R. & N. Sarma (2007), “CEO overconfidence, CEO dominance and corporate acquisitions”, Journal of Economics and Business, 59(5), 358-379.
  • Chijuka, I.M. & H. Momoh (2018), “Hubris hypothesis and model of managerial irrationality background of the study”, International Journal of Training and Development, 3(2), 53-73.
  • Croci, E. et al. (2010), “Managerial overconfidence in high and low valuation markets and gains to acquisitions”, International Review of Financial Analysis, 19(5), 368-378.
  • De Bodt, E. et al. (2014), “The Hubris Hypothesis: Empirical Evidence”, <https://authors.library.caltech.edu/79433/1/sswp1390.pdf>, 23.03.2017.
  • Deo, M. & A. Shah (2012), “Testing hubris hypothesis of mergers and acquisitions: evidence from India”, Business & Management Quarterly Review, 3(2), 48-58.
  • Doukas, J.A. & D. Petmezas (2007), “Acquisitions, overconfident managers and self‐attribution bias”, European Financial Management, 13(3), 531-577.
  • El-Khatib, R. et al. (2012), “CEO network centrality and merger performance”, SSRN Electronic Journal, 116(2), 1-60.
  • Ercan, M.K. & A. Üreten (2000), Firma Değerinin Tespiti ve Yönetimi, Gazi Kitabevi.
  • Gervais, S. (2009), “Behavioral finance: capital budgeting and other investment decisions”, Fuqua School of Business Duke University, 3, 1-35.
  • Goel, A.M. & A.V. Thakor (2002), “Do overconfident managers make better leaders”, Working Paper, University of Michigan.
  • Gökbulut, R.İ. (2009), “Hissedar Değeri ile Finansal Performans Ölçütleri Arasındaki İlişki ve İMKB Üzerine Bir Araştırma”, Doktora Tezi, İ.Ü. Sosyal Bilimler Enstitüsü, İstanbul.
  • Gürsoy, C.T. (2007), Finansal Yönetim İlkeleri, Doğuş Üniversitesi Yayınları.
  • Huang, J. & D.J. Kisgen (2013), “Gender and corporate finance: are male executives overconfident relative to female executives?”, Journal of Financial Economics, 108(3), 822-839.
  • Hwang, H.D. et al. (2020), “The blind power: power-led CEO overconfidence and M&A decision making”, The North American Journal of Economics and Finance, 52, 101141.
  • Kasiani, M. et al. (2015), “Managerial overconfidence and firm value”, Indian Journal of Fundamental and Applied Life Sciences, 5(S1), 2176-2182.
  • Kepez, M. (2006), “İndirgenmiş Nakit Akımları Yöntemine (İNA) Göre Firma Değerinin Tespiti ve İNA Yöntemine Göre Firma Değerlemesi İçin Metedolojik Yaklaşım”, Doktora Tezi, Marmara Üniversitesi, Bankacılık ve Sigortacılık Enstitüsü, İstanbul.
  • Kilian, S. & A. Schindler (2014), “Influence of CEO Characteristics on Short-Term M&A Performance”, Master of Degree Project in Corporate and Financial Management, Lund University.
  • Küçükkaplan, İ. (2013), “İstanbul Menkul Kıymetler Borsasında işlem gören üretim firmalarının piyasa değerini açıklayan içsel değişkenler: panel verilerle sektörel bir analiz”, Eskişehir Osmangazi Üniversitesi, İİBF Dergisi, 8(2), 161-182.
  • Li, J. & Y.I. Tang (2010), “CEO hubris and firm risk taking in China: the moderating role of managerial discretion”, Academy of Management Journal, 53(1), 45-68.
  • Lin, B.X. et al. (2008), “Hubris amongst Japanese bidders”, Pacific-Basin Finance Journal, 16(1-2), 121-159.
  • Liu, Y. et al. (2009), “CEO value destruction in M&A deals and beyond”, Long Range Planning, 31, 347-353.
  • Liu, H. & L. Xie (2011), “CEO hubris, firm investment and firm performance”, Psychology Research, 05(2011), 1838-658X.
  • Nofsinger, J.R. (2001), Investment Madness: How Psychology Affects Your Investing… and What To Do About It, Financial Times Prentice Hall Books.
  • Malmendier, U. & G. Tate (2004), “Who makes acquisitions? a test of the overconfidence hypothesis”, NBER Working Paper.
  • Malmendier, U. & G. Tate (2008), “Who makes acquisitions? CEO overconfidence and the market's reaction”, Journal of Financial Economics, 89(1), 20-43.
  • Malmendier, U. & H. Zheng (2012), “Managerial duties and managerial biases”, University of California at Berkeley Working Paper.
  • Malmendier, U. et al. (2020), “Managerial duties and managerial biases”, Discussion Paper Series, DP14929, 1-90.
  • Mishra, K.C. & M.J. Metilda (2015), “A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias”, IIMB Management Review, 27(4), 228-239.
  • Özen, E. & G. Ersoy (2022), “Behavioral finance and financial literacy: an evaluation for teachers”, Journal of Economics and Business Issue, 2(1), 33-44.
  • Roll, R. (1986), “The hubris hypothesis of corporate takeovers”, Journal of Business, 197-216.
  • Shah, S.S.H. et al. (2018), “Investor and manager overconfidence bias and firm value: micro-level evidence from the Pakistan equity market”, International Journal of Economics and Financial Issues, 8(5), 190.
  • Taner, B. & G.C. Akkaya (2003), “İşletme değerini belirleme yöntemleri ve farklı sektörlerdeki işletmeler üzerine bir uygulama”, Ege Akademik Bakış Dergisi, 3(1), 1-7.
  • Tang, C.H. et al. (2020), “CEO characteristics enhancing the impact of CEO overconfidence on firm value after mergers and acquisitions-a case study in China”, Review of Pacific Basin Financial Markets and Policies, 23(01), 2050003.
  • Tekin, B. (2019), “Kendine aşırı güven ve ölçme yöntemleri: davranışsal finans kapsamında bir literatür incelemesi”, Anemon Muş Alparslan Üniversitesi Sosyal Bilimler Dergisi, 7(2) , 293-308.
  • Yalçın, S. (2014), “Aşırı Güven ve Borç Düzeyi İlişkisi: Bist İnşaat Sektöründe Ampirik Bir İnceleme”, Yüksek Lisans Tezi, Gümüşhane Üniversitesi Sosyal Bilimler Enstitüsü.
  • Yim, S. (2013), “The acquisitiveness of youth: CEO age and acquisition behavior”, Journal of Financial Economics, 108(1), 250-273.
  • Walters, B.A. et al. (2007), “CEO tenure, boards of directors, and acquisition performance”, Journal of Business Research, 60(4), 331-338.
  • Wang, Z. (2017), “The Empirical Research on the Influence of Managerial Overconfidence on the Mergers And Acquisitions Decision”, 2017 International Conference on Service Systems and Service Management, China.

Birleşme ve Satın Alma Gerçekleştiren Firma Yöneticilerinin Aşırı Güven Davranışlarının Firma Değeri Üzerine Etkisi

Year 2022, Volume: 30 Issue: 54, 101 - 119, 25.10.2022
https://doi.org/10.17233/sosyoekonomi.2022.04.05

Abstract

Bu çalışmanın amacı, Borsa İstanbul’da hisse senetleri işlem gören firmalarda birleşme ve satın alma gerçekleştiren firma yöneticilerinin aşırı güven davranışlarının firma değeri üzerine etkisini incelemektir. Çalışmada, Tobin q (Model 1), borsa değeri (Model 2) ve girişim değeri (Model 3) için model oluşturulmuştur. Çalışmanın sonucunda firma değerindeki değişim ile aşırı güven değişkeni arasında negatif yönlü ilişki tespit edilmiştir. Bu sonuca göre birleşme ve satın alma gerçekleştiren yöneticilerde aşırı güvenin varlığı söz konusu ise firma değeri belirlenirken hatalı karar verilebilir. Bu durum, hissedarların servetinde azalmaya yol açar. Bu açıdan şirketlerin birleşme ve satın alma kararları yöneticilerin aşırı güvenleri de dikkate alınarak değerlendirilmelidir.

References

  • Adams, R.B. et al. (2005), “Powerful CEOs and their impact on corporate performance”, The Review of Financial Studies, 18(4), 1403-1432.
  • Ali, A.M. & J. Anis (2012), “CEO emotional bias and dividend policy: Bayesian network method”, Business and Economic Horizons (BEH), 7(1232-2016-101100), 1-18.
  • Asaoka, D. (2019), “Behavioral analysis of mergers and acquisitions decisions”, Corporate Board: Role, Duties and Composition, 15(3), 8-16.
  • Ayrıçay, Y. & V.E. Türk (2014), “Finansal oranlar ve firma değeri ı̇lişkisi: BİST’de bir uygulama”, Muhasebe ve Finansman Dergisi, (64), 53-70.
  • Baccar, A. et al. (2013), “Managerial optimism, overconfidence and board characteristics: towards a new role of corporate governance”, Australian Journal of Basic and Applied Sciences, 7(7), 287-301.
  • Baker, H.K. et al. (2012), “Are good performers bad acquirers?”, Financial Management, 41(1), 95-118.
  • Barber, B.M. & T. Odean (2001), “Boys will be boys: gender, overconfidence, and common stock investment”, The Quarterly Journal of Economics, 116(1), 261-292.
  • Barber, B.M. & T. Odean (2005), “Advances in behavioral finance”, in: R.H. Thaler (ed.), Individual Investors (Vol. 2) (443-469), Princeton University Press.
  • Barberies, N. & R. Thaler (2003), “Handbook of the economics of finance”, in: G.M. Constantinides et al. (eds), A Survey of Behavioral Finance (1052-1090), Elsevier Science B.V.
  • Beckhaus, G.M. (2013), “Comply or explain-a flexible mechanism to countervail behavioral biases in M&A transactions”, University of Miami Business Law review, 21(1), 183, 221.
  • Berlo, K. (2014), “The Influence of CEO and CFO Overconfidence on Earnings Management”, Master Thesis, Faculty of Economics and Business, The University of Amsterdam.
  • Bertrand, M. & A. Schoar (2003), “Managing with style: the effect of managers on firm policies”, The Quarterly Journal of Economics, 118(4), 1169-1208.
  • Billett, M.T. & Y. Qian (2005), “Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers”, <http://www.econ.yale.edu//~shiller/behfin/2005-11/qian-billett.pdf>, 16.09.2017.
  • Birgili, E. & M. Düzer (2010), “Finansal analizde kullanılan oranlar ve firma değeri ilişkisi: İMKB’de bir uygulama”, Muhasebe ve Finansman Dergisi, (46), 74-83.
  • Borghgraef, T. (2014), “Acquisition Motives and Methods of Financing”, Master Thesis, Ghent University.
  • Brown, R. & N. Sarma (2007), “CEO overconfidence, CEO dominance and corporate acquisitions”, Journal of Economics and Business, 59(5), 358-379.
  • Chijuka, I.M. & H. Momoh (2018), “Hubris hypothesis and model of managerial irrationality background of the study”, International Journal of Training and Development, 3(2), 53-73.
  • Croci, E. et al. (2010), “Managerial overconfidence in high and low valuation markets and gains to acquisitions”, International Review of Financial Analysis, 19(5), 368-378.
  • De Bodt, E. et al. (2014), “The Hubris Hypothesis: Empirical Evidence”, <https://authors.library.caltech.edu/79433/1/sswp1390.pdf>, 23.03.2017.
  • Deo, M. & A. Shah (2012), “Testing hubris hypothesis of mergers and acquisitions: evidence from India”, Business & Management Quarterly Review, 3(2), 48-58.
  • Doukas, J.A. & D. Petmezas (2007), “Acquisitions, overconfident managers and self‐attribution bias”, European Financial Management, 13(3), 531-577.
  • El-Khatib, R. et al. (2012), “CEO network centrality and merger performance”, SSRN Electronic Journal, 116(2), 1-60.
  • Ercan, M.K. & A. Üreten (2000), Firma Değerinin Tespiti ve Yönetimi, Gazi Kitabevi.
  • Gervais, S. (2009), “Behavioral finance: capital budgeting and other investment decisions”, Fuqua School of Business Duke University, 3, 1-35.
  • Goel, A.M. & A.V. Thakor (2002), “Do overconfident managers make better leaders”, Working Paper, University of Michigan.
  • Gökbulut, R.İ. (2009), “Hissedar Değeri ile Finansal Performans Ölçütleri Arasındaki İlişki ve İMKB Üzerine Bir Araştırma”, Doktora Tezi, İ.Ü. Sosyal Bilimler Enstitüsü, İstanbul.
  • Gürsoy, C.T. (2007), Finansal Yönetim İlkeleri, Doğuş Üniversitesi Yayınları.
  • Huang, J. & D.J. Kisgen (2013), “Gender and corporate finance: are male executives overconfident relative to female executives?”, Journal of Financial Economics, 108(3), 822-839.
  • Hwang, H.D. et al. (2020), “The blind power: power-led CEO overconfidence and M&A decision making”, The North American Journal of Economics and Finance, 52, 101141.
  • Kasiani, M. et al. (2015), “Managerial overconfidence and firm value”, Indian Journal of Fundamental and Applied Life Sciences, 5(S1), 2176-2182.
  • Kepez, M. (2006), “İndirgenmiş Nakit Akımları Yöntemine (İNA) Göre Firma Değerinin Tespiti ve İNA Yöntemine Göre Firma Değerlemesi İçin Metedolojik Yaklaşım”, Doktora Tezi, Marmara Üniversitesi, Bankacılık ve Sigortacılık Enstitüsü, İstanbul.
  • Kilian, S. & A. Schindler (2014), “Influence of CEO Characteristics on Short-Term M&A Performance”, Master of Degree Project in Corporate and Financial Management, Lund University.
  • Küçükkaplan, İ. (2013), “İstanbul Menkul Kıymetler Borsasında işlem gören üretim firmalarının piyasa değerini açıklayan içsel değişkenler: panel verilerle sektörel bir analiz”, Eskişehir Osmangazi Üniversitesi, İİBF Dergisi, 8(2), 161-182.
  • Li, J. & Y.I. Tang (2010), “CEO hubris and firm risk taking in China: the moderating role of managerial discretion”, Academy of Management Journal, 53(1), 45-68.
  • Lin, B.X. et al. (2008), “Hubris amongst Japanese bidders”, Pacific-Basin Finance Journal, 16(1-2), 121-159.
  • Liu, Y. et al. (2009), “CEO value destruction in M&A deals and beyond”, Long Range Planning, 31, 347-353.
  • Liu, H. & L. Xie (2011), “CEO hubris, firm investment and firm performance”, Psychology Research, 05(2011), 1838-658X.
  • Nofsinger, J.R. (2001), Investment Madness: How Psychology Affects Your Investing… and What To Do About It, Financial Times Prentice Hall Books.
  • Malmendier, U. & G. Tate (2004), “Who makes acquisitions? a test of the overconfidence hypothesis”, NBER Working Paper.
  • Malmendier, U. & G. Tate (2008), “Who makes acquisitions? CEO overconfidence and the market's reaction”, Journal of Financial Economics, 89(1), 20-43.
  • Malmendier, U. & H. Zheng (2012), “Managerial duties and managerial biases”, University of California at Berkeley Working Paper.
  • Malmendier, U. et al. (2020), “Managerial duties and managerial biases”, Discussion Paper Series, DP14929, 1-90.
  • Mishra, K.C. & M.J. Metilda (2015), “A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias”, IIMB Management Review, 27(4), 228-239.
  • Özen, E. & G. Ersoy (2022), “Behavioral finance and financial literacy: an evaluation for teachers”, Journal of Economics and Business Issue, 2(1), 33-44.
  • Roll, R. (1986), “The hubris hypothesis of corporate takeovers”, Journal of Business, 197-216.
  • Shah, S.S.H. et al. (2018), “Investor and manager overconfidence bias and firm value: micro-level evidence from the Pakistan equity market”, International Journal of Economics and Financial Issues, 8(5), 190.
  • Taner, B. & G.C. Akkaya (2003), “İşletme değerini belirleme yöntemleri ve farklı sektörlerdeki işletmeler üzerine bir uygulama”, Ege Akademik Bakış Dergisi, 3(1), 1-7.
  • Tang, C.H. et al. (2020), “CEO characteristics enhancing the impact of CEO overconfidence on firm value after mergers and acquisitions-a case study in China”, Review of Pacific Basin Financial Markets and Policies, 23(01), 2050003.
  • Tekin, B. (2019), “Kendine aşırı güven ve ölçme yöntemleri: davranışsal finans kapsamında bir literatür incelemesi”, Anemon Muş Alparslan Üniversitesi Sosyal Bilimler Dergisi, 7(2) , 293-308.
  • Yalçın, S. (2014), “Aşırı Güven ve Borç Düzeyi İlişkisi: Bist İnşaat Sektöründe Ampirik Bir İnceleme”, Yüksek Lisans Tezi, Gümüşhane Üniversitesi Sosyal Bilimler Enstitüsü.
  • Yim, S. (2013), “The acquisitiveness of youth: CEO age and acquisition behavior”, Journal of Financial Economics, 108(1), 250-273.
  • Walters, B.A. et al. (2007), “CEO tenure, boards of directors, and acquisition performance”, Journal of Business Research, 60(4), 331-338.
  • Wang, Z. (2017), “The Empirical Research on the Influence of Managerial Overconfidence on the Mergers And Acquisitions Decision”, 2017 International Conference on Service Systems and Service Management, China.
There are 53 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Articles
Authors

Reyhan Can 0000-0003-1269-273X

Hatice Işın Dizdarlar 0000-0001-8139-0415

Publication Date October 25, 2022
Submission Date December 16, 2021
Published in Issue Year 2022 Volume: 30 Issue: 54

Cite

APA Can, R., & Dizdarlar, H. I. (2022). The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value. Sosyoekonomi, 30(54), 101-119. https://doi.org/10.17233/sosyoekonomi.2022.04.05
AMA Can R, Dizdarlar HI. The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value. Sosyoekonomi. October 2022;30(54):101-119. doi:10.17233/sosyoekonomi.2022.04.05
Chicago Can, Reyhan, and Hatice Işın Dizdarlar. “The Effect of Managers’ Overconfidence Who Have Made Mergers and Acquisitions on the Firm Value”. Sosyoekonomi 30, no. 54 (October 2022): 101-19. https://doi.org/10.17233/sosyoekonomi.2022.04.05.
EndNote Can R, Dizdarlar HI (October 1, 2022) The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value. Sosyoekonomi 30 54 101–119.
IEEE R. Can and H. I. Dizdarlar, “The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value”, Sosyoekonomi, vol. 30, no. 54, pp. 101–119, 2022, doi: 10.17233/sosyoekonomi.2022.04.05.
ISNAD Can, Reyhan - Dizdarlar, Hatice Işın. “The Effect of Managers’ Overconfidence Who Have Made Mergers and Acquisitions on the Firm Value”. Sosyoekonomi 30/54 (October 2022), 101-119. https://doi.org/10.17233/sosyoekonomi.2022.04.05.
JAMA Can R, Dizdarlar HI. The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value. Sosyoekonomi. 2022;30:101–119.
MLA Can, Reyhan and Hatice Işın Dizdarlar. “The Effect of Managers’ Overconfidence Who Have Made Mergers and Acquisitions on the Firm Value”. Sosyoekonomi, vol. 30, no. 54, 2022, pp. 101-19, doi:10.17233/sosyoekonomi.2022.04.05.
Vancouver Can R, Dizdarlar HI. The Effect of Managers’ Overconfidence who have Made Mergers and Acquisitions on the Firm Value. Sosyoekonomi. 2022;30(54):101-19.