Acquisitions, Overconfident Managers and Self-Attribution Bias

47 Pages Posted: 24 May 2007

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Dimitris Petmezas

Durham University Business School

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We examine whether acquisitions by overconfident managers generate superior abnormal returns and whether managerial overconfidence stems from self-attribution. Self-attribution bias suggests that overconfidence plays a greater role in higher order acquisition deals predicting lower wealth effects for higher order acquisition deals. Using two alternative measures of overconfidence (1) high order acquisition deals and (2) insider dealings we find evidence supporting the view that average stock returns are related to managerial overconfidence. Overconfident bidders realise lower announcement returns than rational bidders and exhibit poor long-term performance. Second, we find that managerial overconfidence stems from self-attribution bias. Specifically, we find that high-order acquisitions (five or more deals within a three-year period) are associated with lower wealth effects than low-order acquisitions (first deals). That is, managers tend to credit the initial success to their own ability and therefore become overconfident and engage in more deals. In our analysis we control for endogeneity of the decision to engage in high-order acquisitions and find evidence that does not support the self-selection of excessive acquisitive firms. Our analysis is robust to the influence of merger waves, industry shocks, and macroeconomic conditions.

Suggested Citation

Doukas, John A. and Petmezas, Dimitris, Acquisitions, Overconfident Managers and Self-Attribution Bias. European Financial Management, Vol. 13, No. 3, pp. 531-577, June 2007, Available at SSRN: or

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

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Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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