The Effect Of Managerial Overconfidence On The Company's Merger Performance

Since the late 19-century,waves of global merger and acquisition(M&A)have exerted huge impact not only on the management performance,and structure and scale of enterprises,but also the world economic development trend.Particularly in 2013,a relatively slack M&A policy for listed companies led to an explosive growth.This growing momentum continued and the transaction scale and quantity hit a record high in 2015.Companies,involving in M&A for the purpose of generating benefits,including increasing market share,streamlining intermediate links,reducing production costs,and optimizing resource allocation,etc.,expect the benefits to be transferred into an improved performance.However,a long-term study shows that many companies,instead of benefiting from merger and acquisition,declined after merger.By further studies,scholars discovered that the type of merger and acquisition is one of the determining factors.Moreover,with further study,more and more scholars noticed the psychological factor-the overconfidence of managers.In fact,Previous studies always assume the manager to be a rational economic man when making acquisition decisions,but unfortunately this is only a theoretical assumption.In real life,most experienced managers take privileged positions,which enable them to acquire information that is beyond the access of ordinary people.This privilege may lead to the arrogance of managers.In other words,managers are often not a rational economic man as presuned and may make acquisition-related decisions irrationally.Therefore,the arrogant attitude of managers may be one of the leading reasons of an unsatisfactory acquisition.This paper takes M&A activities(2011--2013)of companies listed on the Shanghai or Shenzhen stock exchanges(known as 'A' shares)as samples.It calculates return on equity(ROE)growth rate and takes a pay ratio to indicate the manager's attitude.With the purpose of examining the impact of the M&A type and managerial overconfidence on M&A performance,the paper assesses the psychological impact under circumstances of different M&A types respectively.The paper has seven parts.The first is introduction.This part introduces research background and significance,research content and methodology,and major innovation and shortcomings of the paper.The second part is literature review.It systematically reviews and summarizes the impact of managerial overconfidence and the M&A type on the M&A performance.The third part is the theoretical basis.It mainly defines concerning concepts and explains relevant theories.This part lays a solid theoretical foundation for the paper.The fourth is the theoretical analysis and research hypothesis.Based on the theory of the third part,it proposes two hypotheses:First,managerial overconfidence associates negatively with M&A performance;Second,eompared with horizontal mergers and acquisitions,diversified mergers and acquisitions see a more remarkable negative impact of managerial overconfidence on M&A performance.The fifth part is the research design.It determines sample sources and screening criteria,as well as defines relevant control variables and constructs a reasonable model.The sixth part is the empirical test and test results analyze.It covers descriptive statistics,correlation and regression analysis test.The seventh part is conclusions and recommendations.This part summarizes the results obtained,and thereby makes relevant recommendations.There are two major conclusions:(1)Mergers and acquisitions led by overconfident managers will cause a declining corporate performance;(2)The impact of managerial overconfidence differs according to different types of M&A,so does the M&A performance;Compared with horizontal mergers and acquisitions,diversified mergers and acquisitions have a more remarkable negative impact of managerial overconfidence on M&A performance.