Abstract
This study investigates the interactive impact of CEO overconfidence and investor sentiment on merger behavior in U.S. firms. We find that the influence of CEO overconfidence on merger frequency is stronger during periods of high investor sentiment, diminishing in low sentiment times. It suggests that investor sentiment is a more dominant determinant than CEO overconfidence in shaping merger frequency. Furthermore, a bullish market trend motivates overconfident CEOs to pursue diversifying mergers, while a bearish market trend encourages cash payments. Overall, overconfident CEOs adapt their merger behavior based on the economic environment, with investor sentiment playing a dominant role in decision-making.
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