Impact of CEO Overconfidence on M&A Performance in the US: A Content Analysis

Abstract

Despite the high activity on the market for corporate control, more than 60% of M&As are unsuccessful and contribute to damage to the value of the acquiring company. We still have little evidence on the impact of M&A deals in different countries and industries on shareholer value, as well as the factors that influence this impact. Academic researchers and practitioners continue to seek out the factors that influence M&A performance, but results are still inconclusive, indicating the need for further research into acquisition performance and factors that influence the overall success of M&A deals. This paper examines the impact of CEO overconfidence on the performance of M&A deals in the United States. In contrast to previous studies, we, first of all, use earnings call transcripts in content analysis as the base to measure CEO overconfi-dence; secondly, we apply cluster analysis to identify the factors that force CEOs to structure their speech during earnings calls in a similar manner; and, thirdly, we assess the impact of CEO overconfidence on the performance of high-tech deals. The study is based on a sample of 492 M&A transactions implemented during the post-crisis period, 2009–2019. Using the event study method to assess the performance of M&A deals and regression analysis, we prove that CEO overconfidence has a negative impact on the success of M&As. However, when considering a subsample of deals in which the target com-pany operates in a high-tech industry, we failed to identify a significant impact of overconfidence on M&A performance. As a result of cluster analysis, we identified a cluster of 165 companies with a common structure and similarity of CEO speeches, which are not explained by the companies’ affiliation with similar industries. This suggests that overconfident CEOs tend to use and structure their speeches similarly.