Do Strong Boards and Trading in Their Own Firm's Stock Help CEOs Make Better Decisions? Evidence from Corporate Acquisitions by Overconfident CEOs.
61 Pages Posted: 20 Mar 2010 Last revised: 2 Aug 2017
Date Written: April 23, 2012
Abstract
Little evidence exists on whether boards help managers make better decisions. We provide evidence that strong and independent boards help overconfident CEOs avoid honest mistakes when they seek to acquire other companies. In addition, we find that once-overconfident CEOs make better acquisition decisions after they experience personal stock trading losses, providing evidence that a manager's recent personal experience, and not just educational and early career experience, influences firm investment policy. Finally, we develop and validate a new CEO overconfidence measure that is easily constructed from machine-readable insider trading data, unlike previously-used measures.
Keywords: CEO overconfidence, behavioral corporate finance, corporate governance, mergers and acquisitions
JEL Classification: G32, G34, H32
Suggested Citation: Suggested Citation
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