17.22 CEO overconfidence/dominance and corporate acquisitions.

The acquisition literature suggests that takeovers occur either due to conflicts between managers and shareholders or to create a new entity that exceeds the sum of its previously separate components. Other research has offered managerial hubris as a third option, but it has not been studied empirically. Recently, some researchers revisited acquisitions over a 10-year period in the Australian financial system.⁶ A measure of CEO overconfidence was based on the CEO's level of media exposure, and a measure of dominance was based on the CEO's remuneration relative to the firm's total assets. They then used logistic regression to see whether CEO overconfidence and dominance were positively related to the probability of at least one acquisition in a year. To help isolate the effects of CEO hubris, the model included explanatory variables of firm characteristics and other potentially important factors in the decision to acquire. The following table summarizes the results for the two key explanatory variables: