Overconfidence Hypothesis Research Articles

Empirical Determinants of Momentum: A Perspective Using International Data

Abstract Although momentum exists in many markets throughout the world, explanations for momentum have largely been tested using U.S. data. We investigate the extent to which U.S.-based momentum explanations extend to the international context, using regression-based and portfolio approaches. Amongst the several hypotheses we consider, we find reliable support for the hypothesis that because of limited attention, investors underreact to information arriving in small bits rather than in large chunks, which results in momentum. We also find secondary support for the overconfidence hypothesis for momentum. Finally, we find that momentum is stronger in up-markets and less-volatile markets in the international context just as in the U.S. This finding also accords with the investor overconfidence hypothesis, under the proviso that investors are more confident in rising, low-volatility markets.

Does Managerial Overconfidence Change with Market Conditions? Risk Management for Financial Institutions

Overconfidence (hubris or overestimation of one’s ability to perform) has been viewed in the finance literature as a character trait that is stable over time, e.g., assuming that if a manager is overconfident, he/she is overconfident all the time. In this paper, we aim to show that managerial overconfidence can be state-contingent, i.e., the level of managerial overconfidence could be influenced by an external economic shock such as the global financial crisis in 2008. A novelty of this paper is to provide evidence for and application of the concept of state-based managerial overconfidence, which is new in the finance literature. Two empirical studies were reported. In the first study (Study 1), we analyzed real market data by linear regression. We found that managerial overconfidence could vary according to changes in the state of the macroeconomy or tightening of corporate governance policies. In the second study (Study 2), we conducted a lab experiment simulating how external manipulations could alter participants’ confidence level. Both our empirical studies provide strong evidence of state-contingent overconfidence by Student’s t-test and contribute to the current finance literature, which assumes overconfidence as a personality trait. Our findings have important practical implications for the credit market. According to the state-contingent overconfidence hypothesis, creditors might reduce the loan amount or the loan duration (or other loan contract terms) too excessively by more than the efficient level during an economic downturn if the offsetting effect of state-contingent overconfidence is ignored.

A Study on the Long-Term Performance of Mergers in the Korean Stock Market

This study analyzes the merger-related hypotheses which are managerial overconfidence hypothesis, controlling shareholder interest hypothesis, synergy hypothesis, financial constraint hypothesis, and momentum hypothesis through long-term performance analysis of acquiring firms. As a result of empirical analysis, first, the three-year event-time buy-andhold excess return (BHAR) was about -10% for both the average and median values which is statistically significant. Second, through both calendar-time portfolio excess return and BHAR, we find that the stronger the management's overconfidence is, the lower the longterm performance is. On the other hand, in the case of mergers by horizontal combinations, there was a positive synergy effect. This means that the management overconfidence hypothesis, the financial constraint hypothesis, the momentum hypothesis of merger performance, and the synergy hypothesis are established. Despite the poor long-term performance of mergers between domestic companies, this study provides implications that the merger may be mainly due to unreasonable overconfidence of managers and short-term perspectives of management.

Does a Chairperson's military experience promote share repurchase? Evidence from Chinese listed companies

Although some studies have suggested that executives' military experience affects corporate decisions, whether and how it is associated with share repurchases is less well understood. Using a data set of 10,960 firm-year observations from A-share listed firms between 2005 and 2019, we found that firms run by military chairpersons are more likely to announce and implement share repurchases. In addition, we found the short-run abnormal returns of share repurchase announcements to be less favourable in firms with military chairpersons. The findings are best explained by the overconfidence hypothesis, which holds that military chairpersons are prone to overconfidence and perceive their firm's stocks as underpriced. We also found that the positive effect of chairpersons' military experiences on share repurchases is more pronounced when they have longer tenure. Moreover, we found that the involvement of grassroots committees of the Chinese Communist Party in firm decision-making could effectively restrain military chairpersons' overconfidence bias.

Individual differences in susceptibility to cybercrime victimization and its psychological aftermath

This study explicated individual differences in susceptibility to cybercrime victimization by predicting that frequent use of information technology (IT) devices is related to greater likelihood of cybercrime victimization (exposure hypothesis), and testing whether individuals more vulnerable to cybercrimes are characterized by higher (overconfidence hypothesis) or lower (negligence hypothesis) levels of IT self-efficacy. Our study also investigated whether cybercrime victimization would influence one's perception of interpersonal relations and subjective well-being. Data were drawn from a representative sample of 1018 Hong Kong participants (46% men; mean age = 42.18). The results from correlation analysis supported the exposure hypothesis by revealing a positive association between IT use and cybercrime victimization. Consistent with both the exposure and overconfidence hypotheses, the mediation analysis showed that IT self-efficacy was positively related to IT use, which in turn was positively related to cybercrime victimization. The correlation analysis further revealed that cybercrime victimization was inversely associated with trusting people online, perceived control, perceived fairness, life satisfaction, and happiness. Our novel findings imply escalating risks of cybercrime victimization as both the amount of IT use and users' IT proficiency are growing, and evidence-based programs are needed to increase users' awareness of the prevalence of cybercrimes and build resilience to combat cyber-attacks.

In Response

We appreciate the letter by Naguib et al1 in response to our editorial.2 We agree that anesthesiologists are generally unwilling to use quantitative monitors, that merely providing such devices will not eliminate residual postoperative neuromuscular blockade, and that an educational campaign and standards of practice are important in promoting quantitative neuromuscular blockade use. However, we do worry that, absent clear proof, an argument that overconfidence is the “most likely” reason why anesthesiologists do not use such monitors3 may not be correct. In our editorial,2 we suggest several potential confounders to the overconfidence hypothesis as tested by Naguib et al3; that the purpose of the survey was not explained to participants, the questions used to assess confidence among study participants were largely unrelated to clinical management of neuromuscular blockade or currently available neuromuscular-blocking agents, and that the anchoring of confidence was complex and easily misunderstood. Although the routine use of objective neuromuscular monitors in the perioperative period is proposed by many, practical obstacles to this goal may contribute to their inconsistent use. In addition to the relative lack of availability of these devices, their accuracy, and ease of use, clinician access to optimal monitoring sites, as well as clinical evidence of recovery may all play a role. A clinician might reasonably wonder whether delaying extubation at the end of a case to untuck an arm and apply a quantitative monitor is reasonable when the emerging patient is already so strong that additional operating room (OR) personnel are required to prevent self-extubation. We would also note that the widespread adoption of new practices does not always take 17 years. Clinicians readily and rapidly adopt monitoring devices perceived to have clinical value, even if the use of these devices requires additional effort and is not consistently supported by the literature. Although the pulse oximeter is the most prominent example of a monitor adopted rapidly and used widely by anesthesiologists despite a lack of supportive literature, other examples include the bispectral index and pulmonary artery catheter. An alternate explanation for the delay in incorporating quantitative monitors into daily practice might be that clinicians do not perceive that the real-world use of such monitors achieves that balance of efficacy and effort that triggers widespread use. In the case of quantitative neuromuscular monitors, existing data suggest that the incidence of clinically relevant respiratory events is <1%.4 Although overconfidence is a possible reason for nonuse of quantitative monitoring, it may not be the only (or even most likely) reason. We do not disagree that physicians may be overconfident. But we question whether <100% performance on multiple-choice testing necessarily indicates overconfidence with respect to clinical practice and note that real-world clinical practice challenges have many causes. Medication errors are frequently the result of system-wide issues and compromise of patient safety may be due to alarm fatigue. With respect to monitoring depth of neuromuscular blockade, we would argue that “rather than attributing current clinical practice to a trait that is common in physicians, we should support development of a quantitative monitor of neuromuscular blockade that is as easy to use as our current standard monitors, that is simple to maintain, and that provides reliable data on which we can base clinical decisions.”1 Avery Tung, MD, FCCMDepartment of Anesthesia and Critical CareUniversity of Chicago, ChicagoIllinois Ann Harman, PhDThe American Board of AnesthesiologyRaleigh, North Carolina Cynthia A. Lien, MDDepartment of AnesthesiologyMedical College of WisconsinMilwaukee, Wisconsin[email protected]

Overconfidence Test in Cryptocurrencies Markets Using VAR Analysis

The rapid technological development in finance in general, and in BTC in particular, has continued to gain traction worldwide since its emergence in the last decade. Initially, this growth was largely due to the work of tech enthusiasts; however, this changed in 2017, when BTC and various other CCs became main selling points in the financial world. Since the early peak of these electronic-cash developments in 2018, Google searches for ‘Bitcoin’ and ‘cryptocurrencies’ have continued to reach record highs. Most recently, on the 2nd of April, 2019, this trend in Google searches for cryptocurrencies, particularly ‘BTC, reached 90 percent of the peak observed on the 19th of November, 2018. This market for cryptocurrencies (hereinafter referred to as ‘crypto-market’) has gained substantial attention from theorists and empirical researchers, but the inherent complexities in this phenomenon are yet to be fully explored. Motivated by overconfidence theory, in the current study, we question whether the recent degree of volatility and trading activity in cryptocurrency behaviour shares any overlap with the momentum of the Dot-Com bubble in the 1980s, where tech-based infrastructure gained power and became overconfident very quickly, yielding spurious share prices for these firms and their products. Following this, it is expected that an identifiable pattern in price behaviour will emerge after correction to such significant growth (Caporale and Plastun, 2018). Moreover, it is worth noticing that the majority of crypto-participants are overwhelmingly male (Coindesk, 2018) and psychological research has established that, in the area of finance, men are more overconfident compared with women (Barber and Odean, 2001). Despite studies on overconfidence originating in the field of psychology, such investigation has migrated into the literature on economics and finance. Particularly, overconfidence is considered as the key behavioural factors needed to understanding the trading puzzle (De Bondt and Thaler, 1995). Indeed, overconfidence theory had taken its place in the growing list of behavioural studies which were used to be on the fringes, but are now occupying mainstream research in relevant fields. Accordingly, although our analysis was initially motivated by the overconfidence hypothesis, the findings related to the dependence of trading volume and overconfidence are considered an essential empirical principle which should be duly acknowledged by both theorists and empirical researchers. This thesis investigates the lead-lag relationship between the turnover and return of the crypto-market in general, and the three largest market cap coins (BTC, ETH and XRP) in particular. Alternatively stated, we attempt to support notions of the existence of overconfidence bias in this market. The study utilised the Vector Autoregression (VAR) technique, as well as the Granger-causality and Impulse Response Function (IRF) to produce the three key findings of this study. The first key finding is that the activity in the crypto-market suggests the explanatory power of overconfidence during its tremendous volatility in 2018 is statistically significant but economically subtle. Accordingly, this study found evidence of overconfidence bias in Bitcoin and Ripple investments, as well as in the crypto-market, wherein the trading activities were responsive to lagged-market returns. The relatively pronounced dependence of ETH turnover on its lagged-return presents our second finding, which suggests ETH 3 participants trade under the disposition effect. We also perceive that BTC, ETH and XRP differ in terms of fundamental drivers and investment intentions, which may account for the economically nonsignificant findings when performing joint interpretations. In addition, we illustrate a high degree of similarity in price movement between BTC and the Dot-Com bubble, as they follow the same psychologically-based market cycle. Therefore, theoretically speaking, it is predicted the significant movement in the price of BTC, as well as the performance of cryptocurrencies will track the market crash of the 1980s due to the overconfidence bias. The conclusion is consistent with a working paper by Obryan (2018). Practically speaking, however, we more consider differences in fundamental underlie cryptocurrencies and its specific long-term use case, which make the price momentum should be interpreted differently. The level of adoption of these tech-integrations then should become the central focus of market participants.

Executive Gender and Prospect-Value Bias: Evidence from Insider Trading

This study shows that prospect value influences insider-trading decisions, and the impact is stronger among female executives’ trades. Insiders who buy (sell) when their company's prospect value is above (below) other firms’ prospect values lose 34 (12) basis points over the next month. Female insider trades, as compared with trades by their male counterparts, are affected more by prospect-value bias, and they suffer significantly higher resultant losses. While the findings contradict the overconfidence hypothesis that predicts poor trading decisions by male insiders, the results are consistent with the male insiders’ superior information access hypothesis, suggesting that behavioral biases diminish with knowledge.

Are educational managers credible or overconfident? Evidence from share repurchases in Taiwan

This paper examines how managerial educational attainment influences the wealth effects of share repurchases by testing the credible hypothesis versus the overconfidence hypothesis. Based on a set of comprehensive data on top managers' education in Taiwanese listed firms, we find that managerial educational levels but not professional backgrounds in finance, accounting, and law management influence the wealth effects of share repurchases. The magnitude of positive market reactions to a repurchase announcement is smaller (larger) for firms with a higher (no) proportion of top managers with doctoral degrees. Such an inverse relation is especially obvious among firms that are poorly governed and financially constrained. We also detect that repurchasing firms with higher managerial educational levels exhibit poorer long-term post-repurchase stock performance and tend to actually buy back more stock. Our overall findings are supported by the overconfidence hypothesis, positing that highly educated top managers are more subject to overconfidence, which leads to perceived mispricing/overvaluing bias. Thereby, the favorable signal of undervaluation regarding their share repurchase may need to be rectified by the stock market.

Investors overconfidence behaviour at Bombay Stock Exchange

PurposeThe purpose of the paper is to empirically test the overconfidence hypothesis at Bombay Stock Exchange (BSE).Design/methodology/approachThe study applies bivariate vector autoregression to perform the impulse-response analysis and EGARCH models to understand whether there is self-attribution bias and overconfidence behavior among the investors.FindingsThe study shows the empirical evidence in support of overconfidence hypothesis. The results show that the overconfident investors overreact to private information and underreact to the public information. Based on EGARCH specifications, it is observed that self-attribution bias, conditioned by right forecasts, increases investors’ overconfidence and the trading volume. Finally, the analysis of the relation between return volatility and trading volume shows that the excessive trading of overconfident investors makes a contribution to the observed excessive volatility.Research limitations/implicationsThe study focused on self-attribution and overconfidence biases using monthly data. Further studies can be encouraged to test the proposed hypotheses on daily data and also other behavioral biases.Practical implicationsInsights from the study suggest that the investors should perform a post-analysis of each investment so that they become aware of past behavioral mistakes and stop continuing the same. This might help investors to minimize the negative impact of self-attribution and overconfidence on their expected utility.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the investors’ overconfidence behavior at market-level data in BSE, India.

Diagnostic error, overconfidence and self-knowledge

According to the overconfidence hypothesis (OH), physician overconfidence is a major factor contributing to diagnostic error in medicine. This article argues that OH can be read as offering a personal, a sub-personal or a systemic explanation of diagnostic error. It is argued that personal level overconfidence is an “epistemic vice”. The hypothesis that diagnostic errors due to overconfidence can be remedied by increasing physician self-knowledge is shown to be questionable. Some epistemic vices or cognitive biases, including overconfidence, are “stealthy” in the sense that they obstruct their own detection. Even if the barriers to self-knowledge can be overcome, some problematic traits are so deeply entrenched that even well-informed and motivated individuals might be unable to correct them. One such trait is overconfidence. Alternative approaches to “debiasing” are considered and it is argued that overconfidence is blameworthy only if it is understood as a personal level epistemic vice rather than a sub-personal cognitive bias. This paper is published as part of a collection on self-knowledge in and outside of illness.

An analysis on the causal relationship between freight rate and newbuilding orders

PurposeThe purpose of this paper is to provide implications for forecasting export of Korean shipbuilding industry that is suffering from deadlock in newbuilding orders, by investigating the causal relationship between freight rate earnings and newbuilding orders in the shipbuilding market.Design/methodology/approachUsing a sample of freight rate earnings and newbuilding orders (in various terms) over the period 1996-2016, Granger causality between the two variables are examined in a vector autoregressive (VAR) model. In addition, the potential asymmetry of the causal relationship according to bullish and bearish market conditions is also investigated using a combination of moving averages of different time spans.FindingsThe results indicate a uni-directional causality running from freight rate earnings to newbuilding orders. This finding implies that shipowners’ confidence in the shipping freight market is particularly important determinants in their newbuilding investment, which is consistent with the overconfidence hypothesis. However, the causality does not vary according to different market conditions.Research limitations/implicationsThis study offers several importation contributions. First, the authors provide evidence that newbuilding orders are positively associated with increase in freight rate earnings. Second, the authors document a causality running from changes in freight rate earnings to the volume of newbuilding orders. These findings support the theoretical expectation of the overconfidence hypothesis. Third, contrary to the findings in the financial market, there is no asymmetric response of the volume of newbuilding orders in bullish and bearish markets. Fourth, this study provide implications for management of Korean shipyards by providing evidence on driving force of newbuilding investment decisions of their customers (shipowners).Practical implicationsThe findings in this study suggest implications for management of Korean shipyards by providing evidence on driving force of newbuilding investment decisions of their customers, as well as determinants of shipbuilding export, an important source of Korea’ national income.Social implicationsThe analysing the major determinants of shipbuilding exports, the findings in this study presents understanding of market cycles in shipbuilding, an important source of Korea’s national income and balance of payment.Originality/valueThis study is the first attempt to analyse the relationship between freight rate earnings and newbuilding investment in the context of the behavioural theory in economics.

Investor's overconfidence and trading volume in the Tunisian market

A sample of 35 Tunisian companies is designed to study the relationship between investors' overconfidence and trading volume by distinguishing it from the disposition effect. We use VAR model in two versions. VAR market model shows a significant and positive correlation between past market return and current market turnover. This result validates overconfidence hypothesis and disposition effect. Therefore, we use a securities VAR model that shows a significant and positive correlation between past market return and current securities turnover in presence of securities returns for some companies. This result validates overconfidence hypothesis and not disposition effect. Other companies are characterised by a disposition effect and not by overconfidence since securities VAR model shows a significant and positive correlation between individual past returns and their current turnover in presence of past market returns. We conclude that the exchange activity is not a simple summation of disposition effect of individual securities.

Market dynamics and momentum in the Taiwan stock market

Prior literature widely documents that the Taiwan stock market exhibits no momentum premium. We attribute this phenomenon to the frequent transitions of the market and hypothesize that the momentum strategy can be profitable when the effect of market dynamics is taken into consideration. Confirming this notion, we document significantly positive momentum profits in Taiwan when the market continues in the same state. The momentum strategy during periods of market transitions, however, exhibits significant reversals. We provide evidence in support of the overconfidence hypothesis in explaining our findings by showing that the significantly positive momentum profit is concentrated in stocks that attract more investor attention. Further investigations show that our results are robust to the inclusion of several conditioning variables, suggesting the uniqueness and importance of market dynamics in momentum investing in Taiwan.

Entrepreneurial failure: Statistical and psychological explanations

Research summary: Entrepreneurial start‐ups suffer high rates of business failure. Previous research on entrepreneurial failure has focused on two kinds of explanations: statistical and psychological. Statistical explanations attribute excess entry to random errors made by boundedly rational entrepreneurs attempting to estimate business opportunities in risky markets. Psychological explanations focus on entrepreneurial overconfidence and competition neglect. These explanations emerged independently and have not been tested or compared in the same study. In this experimental study, we distinguish entrepreneurial markets from other types of markets and test statistical and psychological hypotheses for all market types. We find that excess entry is significantly greater in small, risky markets than in other market types, and that confidence levels account for excess entry, over and above the effects of unbiased statistical errors.Managerial summary: How can we explain the fact that most entrepreneurial ventures fail within five years? Market risk, inadequate capital and inexperienced management certainly play a role. However, from an economic point of view, it seems odd that inexperienced, under‐funded people continue to engage in risky behavior that is widely known to fail. We conducted experiments that tested two explanations of entrepreneurial failure. The first explanation – the statistical hypothesis – argues that entrepreneurship involves high uncertainty, so random errors are inevitable and can produce excess entry (or under‐entry). The second explanation – the psychological hypothesis – says that entrepreneurs' mistakes are not random but skewed heavily toward excess entry; hence, their decisions are distorted by psychological factors such as overconfidence. Our experiments found support for both of these explanations. Random errors under uncertainty explained 60% of the excess entry in our experiments. However, the overconfidence hypothesis correctly predicted that excess entry exceeds under‐entry, and our psychological measures of overconfidence found support in the data. We also found that the markets that most often attract entrepreneurial investment – emerging markets with high uncertainty – were the markets most conducive to excess entry, due to a combination of psychological and market factors. Hence, we conclude that potential entrepreneurs should pay less attention to their own abilities and aspirations, and more attention to the external realities of competition in the marketplace. Copyright © 2015 John Wiley &amp; Sons, Ltd.

Turnover Premium, Foreign Institutional Ownership, and Time-Varying Risk Premium in Taiwan Equity Markets

The low turnover premium found in U.S. equity markets is also found in Taiwan market, unlike the mixed evidence for other stylized effects such as size, book-to-market ratio and momentum. Consistent with investor overconfidence hypothesis proposed by Odean (1998, 1999), the percentage of foreign institutional shareholdings in a stock is found to vary inversely with turnover premium. This inverse relation is robust to the influence of other forces that may interact with turnover rate, such as market capitalization, book-to-market ratio and 6-month past returns, respectively. Time-varying risk premium, particularly in low turnover-low foreign institutional shareholdings percentage portfolio, provides partial explanation for the phenomenon, but the inverse relation persists after risk adjustment by models such as unconditional CAPM, Fama-French three factor model and conditional CAPM.

Volatile market condition and investor clientele effects on mutual fund flow performance relationship

We analyze mutual fund flow–performance relationship using a novel sample of Chinese mutual funds that trade in a volatile market environment. Consistent with existing literature, we find that the net flow to a fund is positively related to past fund performance. However, the positive flow–performance relationship weakens when the stock market is divided into high and low volatile periods or when funds are divided into good and poor performers. Contrary to previous studies using samples in the U.S. and other countries, our results do not exhibit an asymmetric flow–performance relationship, nor do we find any significant Morningstar rating effect or smart money effect. Furthermore, we find that the overall stock market performance is the primary driving force of flow–performance relationship and the positive relationship is more pronounced in bull markets. Consistent with Thaler and Johnson's (1990) house money effect and the overconfidence hypothesis proposed by Gervais and Odean (2001), this suggests that Chinese mutual fund investors are vulnerable to market conditions. The overall results imply that market conditions and investor clientele differences play an important role in fund investments and flow–performance relationships.

Does uncertainty boost overconfidence? The case of financial analysts' forecasts

Purpose – This article aims to examine the link between uncertainty and analysts' reaction to earnings announcements for a sample of European firms during the period 1997-2007. In the same way as Daniel et al., the authors posit that overconfidence leads to an overreaction to private information followed by an underreaction when the information becomes public. Design/methodology/approach – In this study, the authors test analysts' overconfidence through the overreaction preceding a public announcement followed by an underreaction after the announcement. If overconfidence occurs, over- and underreactions should be, respectively, observed before and after the public announcement. If uncertainty boosts overconfidence, the authors predict that these two combined misreactions should be stronger when uncertainty is higher. Uncertainty is defined according to technology intensity, and separate two types of firms: high-tech or low-tech. The authors use a sample of European firms during the period 1997-2007. Findings – The results support the overconfidence hypothesis. The authors jointly observe the two phenomena of under- and overreaction. Overreaction occurs when the information has not yet been made public and disappears just after public release. The results also show that both effects are more important for the high-tech subsample. For robustness, the authors sort the sample using analyst forecast dispersion as a proxy for uncertainty and obtain similar results. The authors also document that the high-tech stocks crash in 2000-2001 moderated the overconfidence of analysts, which then strongly declined during the post-crash period. Originality/value – This study offers interesting insights in two ways. First, in the area of financial markets, it provides a test of a major over- and underreaction model and implements it to analysts' reactions through their revisions (versus investors' reactions through stock returns). Second, in a broader way, it deals with the link between uncertainty and biases. The results are consistent with the experimental evidence and extend it to a cross-sectional analysis that reinforces it as pointed out by Kumar.

Before and after: The impact of a real bubble crash on investors’ trading behavior in the lab

We report the results of an experiment designed to study whether or not having experienced booms and crashes in naturally occurring asset markets affects subjects’ trading behavior in the lab. Active investors in the Shanghai Stock Exchange were recruited to participate in either the Boom treatment, conducted in June 2007 after the Shanghai Stock Exchange had had a bull market for almost 2 years, or the Crash treatment, conducted in August 2008 after the SSE composite index had plummeted almost 60% from its high reached in October 2007. We find that, compared to those in the Crash treatment, subjects in the Boom treatment were much more active when participating in our experimental asset markets in that they tended to made bigger trades and preferred to hold more shares than cash. These behavioral differences cannot be explained by the overconfidence hypothesis.

Do Weakly Governed Acquirers Make Intrinsically Bad Deals? A Study on European Takeovers

In this paper, we empirically investigate whether listed acquirers in Europe initiated deals for reasons other than firm-value maximization. While our results provide no support for managerial agency problems or managerial herding behavior, we do find compelling evidence for the managerial overconfidence hypothesis, as the best-performing acquirers engage in transactions with significantly lower total M&A gains and distribute a larger fraction of gains to target shareholders. Interestingly, these relations are mitigated by concentrated acquirer ownership. Yet, controlling shareholders also pursue private benefits of control through corporate takeovers, with M&A wealth effects depending on the identity of the largest owner.