Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris

Hayward, Mathew L. A. and Hambrick, Donald C. (1997) Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris. Administrative Science Quarterly, 42 1: 103-127. doi:10.2307/2393810


Author Hayward, Mathew L. A.
Hambrick, Donald C.
Title Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris
Journal name Administrative Science Quarterly   Check publisher's open access policy
ISSN 0001-8392
Publication date 1997-03
Sub-type Article (original research)
DOI 10.2307/2393810
Volume 42
Issue 1
Start page 103
End page 127
Total pages 25
Editor Hayagreeva Rao
Place of publication Ithaca, New York
Publisher Cornell University
Language eng
Subject 15 Commerce, Management, Tourism and Services
Formatted abstract
This study examines the role of a chief executive officer's hubris, or exaggerated self-confidence, in explaining the large size of some premiums paid for acquisitions.

In a sample of 106 large acquisitions, we found that four indicators of CEO hubris are highly associated with the size of premiums paid: the acquiring company's recent performance, recent media praise for the CEO, a measure of the CEO's self-importance, and a composite factor of these three variables.

The relationship between CEO hubris and premiums is further strengthened when board vigilance is lacking-when the board has a high proportion of inside directors and when the CEO is also the board chair. On average, we found losses in acquiring firms' shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses.

Thus, CEO hubris has substantial practical consequences, in addition to having potentially great theoretical significance to observers of strategic behavior.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collections: Faculty of Business, Economics and Law -- Publications
UQ Business School Publications
 
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Created: Tue, 05 May 2009, 15:34:06 EST by Maria Campbell on behalf of UQ Business School