Hubris amongst Japanese bidders

Abstract

We consider the issue of hubris in the Japanese mergers and acquisitions (M&A) market. Although prior research suggests that hubris should be and is less severe in the Japanese market, our findings suggest that it still has a significant presence. Using past (excess) market return as a proxy for the likelihood of hubris, we find that high hubris bidders frequently have negative event period abnormal returns, while low hubris bidders have positive event period abnormal returns. Given the importance of keiretsu in Japan and their similarity to Korean chaebols we consider these results in light of the alternative hypothesis of tunneling, which explains similar results in Korea. Finally we consider whether the results are driven by better performing bidders using acquisitions to pay in stock while poorer performing bidders choose to pay in cash. Our results are largely consistent with the hubris hypothesis where over-confident managers may engage in value-destroying M&A.