TY - JOUR
T1 - Explaining the premiums paid for large acquisitions
T2 - Evidence of CEO hubris
AU - Hayward, Mathew L.A.
AU - Hambrick, Donald C.
PY - 1997/1/1
Y1 - 1997/1/1
N2 - This study examines the role of a chief executive officer's hubris, or exaggerated self-confidence, in explaining the large size of some premiums paid for acquisitions. In a sample of 106 large acquisitions, we found that four indicators of CEO hubris are highly associated with the size of premiums paid: the acquiring company's recent performance, recent media praise for the CEO, a measure of the CEO's self-importance, and a composite factor of these three variables. The relationship between CEO hubris and premiums is further strengthened when board vigilance is lacking - when the board has a high proportion of inside directors and when the CEO is also the board chair. On average, we found losses in acquiring firms' shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses. Thus, CEO hubris has substantial practical consequences, in addition to having potentially great theoretical significance to observers of strategic behavior.
AB - This study examines the role of a chief executive officer's hubris, or exaggerated self-confidence, in explaining the large size of some premiums paid for acquisitions. In a sample of 106 large acquisitions, we found that four indicators of CEO hubris are highly associated with the size of premiums paid: the acquiring company's recent performance, recent media praise for the CEO, a measure of the CEO's self-importance, and a composite factor of these three variables. The relationship between CEO hubris and premiums is further strengthened when board vigilance is lacking - when the board has a high proportion of inside directors and when the CEO is also the board chair. On average, we found losses in acquiring firms' shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses. Thus, CEO hubris has substantial practical consequences, in addition to having potentially great theoretical significance to observers of strategic behavior.
UR - http://www.scopus.com/inward/record.url?scp=0031094431&partnerID=8YFLogxK
U2 - 10.2307/2393810
DO - 10.2307/2393810
M3 - Article
AN - SCOPUS:0031094431
VL - 42
SP - 103
EP - 127
JO - Administrative Science Quarterly
JF - Administrative Science Quarterly
SN - 0001-8392
IS - 1
ER -