CEO Overconfidence,Power Allocation And Acquisition Premium

As a major way of company development and capital expansion,corporate mergers and acquisitions(M&As)are very common in China's current capital market.In 2017 alone,the total amount of transactions disclosed in China reached 1891.9 billion yuan Although the M&A is popular,the existing researches have shown that most M&As are failed,and will not achieve their expected returns.In this regard,the mainstream view is that excessive premium payment is one of the main reasons leading to the failure of M&As.So,what causes a higher premium payment?This paper tries to explain this from the perspective of CEO overconfidence.Although the current academic research on CEO overconfidence has been relatively abundant,more literatures focuses on the motivation and performance of M&As,and less attention is paid to its impact on acquisition premium.This article takes the A-share listed companies' M&A data in China from 2008 to 2016 as the research sample,observes the impact of CEO overconfidence on the M&A premium and the moderating role of CEO power allocation.The empirical results show that:(1)Enterprises with CEO overconfidence will pay higher acquisition premium;(2)Compared with state-owned enterprises,the impact of CEO overconfidence on acquisition premium is more significant in private enterprises;(3)The influence of CEO overconfidence on M&A premium level is more significant in enterprises with poor legal environment;(4)The position power of CEO has no significant moderating effect between overconfidence and M&A premium;(5)If the personal power of CEO is greater,overconfidence is more significant in the positive relationship to the M&A premium.In addition,it is also found that position power is the basis for the moderation of personal power,and the M&A premium will damage the company's performance.The possible contributions of this paper are as follows:Firstly,from the perspective of behavioral finance,the impact of irrational decisions made by overconfident CEO on acquisition premium has been studied,which enriches the existing domestic research on the economic consequences of managers'psychological bias.Secondly,according to the source of power,this paper divides the power of CEO into position power and personal power,and discusses whether their impacts are different.Finally,in practical sense,it can provide some references for enterprises to improve the supervision and incentive mechanism and improve managers'rational decision-making level.