TY  - JOUR
AU  - Malmendier,Ulrike
AU  - Tate,Geoffrey
TI  - Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10813
PY  - 2004
Y2  - October 2004
UR  - http://www.nber.org/papers/w10813
L1  - http://www.nber.org/papers/w10813.pdf
N1  - Author contact info:
Ulrike Malmendier
Department of Economics
549 Evans Hall # 3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510-642-5038
E-Mail: ulrike@econ.berkeley.edu

Geoffrey Tate
Finance Department - Rm C420
UCLA Anderson School of Management
110 Westwood Plaza
Los Angeles, CA  90095
Tel: 310-825-3544
E-Mail: geoff.tate@anderson.ucla.edu
AB  - Overconfident CEOs over-estimate their ability to generate returns. Thus, on the margin, they undertake mergers that destroy value. They also perceive outside finance to be over-priced. We classify CEOs as overconfident when, despite their under-diversification, they hold options on company stock until expiration. We find that these CEOs are more acquisitive on average, particularly via diversifying deals. The effects are largest in firms with abundant cash and untapped debt capacity. Using press coverage as "confident" or "optimistic" to measure overconfidence confirms these results. We also find that the market reacts significantly more negatively to takeover bids by overconfident managers.
ER  -