CEO Overconfidence and Corporate Overseas M&A: The Case of Techcent Environment Company

Abstract

Purpose – In recent years, overseas M&As have become an important way for enterprises to invest and expand. Yet, most overseas deals are not successful. Behavioral finance research attributes the failure of overseas M&A to the irrational cognition of corporate decision-makers: that is, overconfidence. This study focuses on exploring the relationship between CEO overconfidence and overseas M&A, and clarifying the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Design/Methodology/Approach – First, based on the hubris hypothesis, this study reviews the literature on CEO overconfidence and overseas M&A. Second, this study uses the case analysis method, taking Techcent Environmental Co., Ltd., as an example, to study the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Findings – Overconfident CEOs tend to make enterprises carry out overseas M&As and use cash in the settlement. At the same time, overconfident CEO overseas mergers and acquisitions have a negative impact on both short-term and long-term corporate performance. Research Implications – This study expands the scope of case studies on the theory of executive overconfidence in behavioral finance, verifies the hubris hypothesis, enriches the case study literature on CEO confidence in behavioral finance, and provides reference for the management and overseas M&As of corporate executives.