The Effect of Founder-CEO Overconfidence on Merger Premium

Thèse de Master , 2014 , 85 Pages , Note: 1,0

Gestion d'entreprise - Investissement et Financement

Theoretical and empirical research has indicated that overconfidence affects merger decision-making and merger premium. However, founder-CEOs have not been subject of such a study, yet. This lack is particular surprising when considering the differences between founder and manager-CEOs as well as the media attention of founder-CEOs. The present dissertation aims to fill the research gap through investigating the effect of founder-CEO overconfidence on merger premium in the high-tech industry. Moreover, this dissertation aims to extend the literature by including target CEO overconfidence and studying the impact on merger premium when both, acquirer and target CEO are overconfident. By studying founder-CEOs this dissertation also aims to establish the effectiveness of founders as CEOs. The resource-based perspective argues that while founders help in the early years of the company, they become less effective as the firm evolves, since they lack the necessary management skills.

Design/methodology/approach – Using ordinary least square (OLS) technique, this study investigates the effects of implemented factors in determining the merger premium paid in high-tech acquisitions. A sample consisting of 245 acquisitions in the high-tech industry of 124 CEOs during a 19-year period (1995 to 2013) has been observed. In order to test the founder-CEO effects, this dissertation develops a matched sample approach of 62 founder-CEOs and 62 manager-CEOs.

This study shows a strong relationship between CEO overconfidence and acquisitions premium paid. The results suggest that the CEO overconfidence may provide an explanation for the well-rehearsed overpayment problem. An additional analysis indicates that the highest premium is paid when combined acquiring and tar-get firm CEO overconfidence exist. The dissertation also shows that founder-CEOs pay higher premia than manager-CEOs in the high-tech industry. It has been proven that founder-CEOs’ decisions are more independent from interventions of the board of directors and that founder-CEO overpayment is not dependent on the company’s size or relatedness of mergers. The findings are reliable as the results remain constant for applied robustness tests.

Inhaltsverzeichnis (Table of Contents)

• ABSTRACT
• TABLE OF CONTENTS
• LIST OF FIGURES
• LIST OF TABLES
• LIST OF ABBREVIATIONS
• CHAPTER ONE: INTRODUCTION
• Aim of the Chapter
• Background and Context to this Study
• Rationale, Aims and Intended Contribution
• Outline of the Dissertation
• CHAPTER TWO: LITERATURE REVIEW
• Aim of the Chapter
• Merger Premium and M&A in the High-Tech Industry
• Review of Merger Premium Determinants
• Review of M&A in the High-Tech Industry
• CEO Overconfidence
• Concept of Overconfidence
• Review of Overconfidence and Merger Premium
• Review of Overconfidence Measures
• Review of Founder-CEO Characteristics
• Reflection on the Literature Review
• Hypotheses Development
• CHAPTER THREE: RESEARCH METHODOLOGY AND DATA SAMPLE
• Aim of the Chapter
• Variables Description
• Dependent Variable
• Overconfidence Measure
• Control Variables
• Data Sample
• Sample Collection and Sources
• Sample Description
• Trend Developments
• Research Method
• Ordinary Least Square (OLS)
• Dissertation Model
• Time Fixed Effects
• CHAPTER FOUR: EMPIRICAL RESULTS AND ANALYSIS
• Aim of the Chapter
• Correlation Matrix
• OLS Regression Results
• Impact of Founder-CEO Overconfidence on Merger Premium
• Impact of Acquirer and Target CEO Overconfidence on Merger Premium
• Founder-CEO Merger Decision-making - Differences between Merger Premia paid by Founder-CEOs and Manager-CEOs
• Robustness Checks
• Corporate Governance and CEO Overconfidence
• Media Portrayal as Measure of Overconfidence
• Principle Component Analysis
• Summary of Empirical Findings
• CHAPTER FIVE: CONCLUSION
• Aim of the Chapter
• Summary of the Study and general Conclusions
• Contributions
• Limitations and Direction for further Research
• References

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This dissertation investigates the effect of founder-CEO overconfidence on merger premium in the high-tech industry. It aims to fill the research gap by studying the impact of both acquirer and target CEO overconfidence on merger premium. Additionally, the dissertation seeks to establish the effectiveness of founders as CEOs, particularly in the context of merger decisions.

• The relationship between CEO overconfidence and merger premium
• The effect of founder-CEO overconfidence on merger premium
• The impact of combined acquirer and target CEO overconfidence on merger premium
• The effectiveness of founders as CEOs in merger decision-making
• The role of corporate governance in mitigating overpayment in mergers

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter One introduces the study's rationale, aims, and intended contribution. It provides background and context to the research, outlining the importance of understanding the role of founder-CEO overconfidence in merger decisions.

Chapter Two reviews existing literature on merger premium, M&A in the high-tech industry, CEO overconfidence, and founder-CEO characteristics. It explores the concept of overconfidence, its impact on merger premium, and different measures of overconfidence. This chapter also examines the specific characteristics of founder-CEOs and their potential influence on merger decisions.

Chapter Three details the research methodology and data sample used in the study. It describes the variables, including the dependent variable (merger premium), the overconfidence measure, and control variables. The chapter also discusses the data collection process, sample description, and the research method employed (ordinary least square regression).

Chapter Four presents the empirical results and analysis, examining the correlation between CEO overconfidence and merger premium, as well as the impact of founder-CEO overconfidence on merger premium. It further analyzes the differences in merger premia paid by founder-CEOs and manager-CEOs. The chapter also includes robustness checks to ensure the reliability of the findings.

Chapter Five summarizes the study's findings, highlighting the key conclusions and contributions to the literature. It discusses the limitations of the study and suggests directions for future research.

Schlüsselwörter (Keywords)

Founder-CEO overconfidence, merger premium, high-tech industry, M&A, strategic leadership, corporate governance, cognitive biases, overpayment problem, resource-based perspective.

• Université: Heriot-Watt University Edinburgh (Finance)
• Cours: Corporate Finance
• Note: 1,0
• Auteur: Christoph Meyer (Auteur)
• Année de publication: 2014
• Pages: 85
• N° de catalogue: V299190
• ISBN (ebook): 9783656957294
• ISBN (Livre): 9783656957300
• Langue: anglais
• mots-clé: Mergers and acquisitions, Behavioral finance, Investment management, High-tech industry, Corporate Governance, Media Portrayal, Principle Component Analysis, Holder67, merger activity, CEO dominance, Tobin Q, relative size