Board overconfidence and M&A performance: evidence from the UK

Abstract

This paper investigates the relationship between board overconfidence and mergers and acquisitions (M&A) performance based on 754 M&A deals in the UK from 2002 to 2018. Employing three proxies to measure overconfidence, namely, fraction of male directors on the board, multiple acquisitions and merger characteristics, our results suggest that a higher fraction of male directors on the board and multiple acquisitions lead to poor M&A performance. The results also show that multiple acquirers’ deals generate higher returns than subsequent deals and this is due to self-attribution bias. In terms of merger characteristics, this study has found that, when overconfident acquirers use cash as the method of payment or when they embark on diversifying M&A, it leads to poor M&A performance. The results are robust across both univariate and multivariate analyses and also across alternate measures of post-merger performance. The findings of this study have important policy implication with regard to the ratio of male directors, number of acquisitions and the method of payment.