Met het hoofd in de wolken. Research into the market response on mergers and acquisitions due to CEO overconfidence of Dutch stock listed companies.

摘要

Everyone knows some examples in history of major mergers and acquisitions (M&As). Sometimes they are predictable; other times there is, out of the blue, a press release about a proposed M&A. The M&A announcements often stipulates the benefits. However, research shows that 60 to 80% of M&As don’t create shareholder value.The reasons for this disappointing score has already been investigated in Anglo-Saxon countries. In a number of studies, it is concluded that M&A decision-making isn’t taken purely rationally, but that behavioral aspects, like overconfidence, play a very important role. Studies show that overconfident CEOs are more inclined to carry out M&As. The connection between overconfidence and M&A shareholders’ value destruction is also made in previous studies. This kind of data is not immediately available for the European situation and in particular the Dutch situation. Nevertheless, the differences between the Anglo-Saxon and the Rhineland countries are such that M&A decision-making by CEOs can be done in a different way and will result in differences between the Netherlands (Rhineland) and Anglo-Saxon countries.This research attempts to make the connection between CEO overconfidence and shareholder value (change) by Dutch stock listed companies as a result of M&A decisions. Two hypotheses are of importance for answering this research question: firstly, that CEO overconfidence in Dutch companies leads to more M&As and secondly that M&As made by overconfident CEOs negatively affect the shareholder value. To test these hypotheses, data was collected from 26 stock listed companies in the period from 2002 up to and including 2015.To determine CEO overconfidence, two methods have been used. The Longholder method, whereby a CEO is identified as overconfident when they at least once during their tenure, hold an option until the year of expiration, even though the option is at least 40% in-the-money entering its final year. The second method is the Holder 67 classification, a CEO qualifies as overconfident when the CEO has an option with five years remaining duration despite a 67% increase in stock price (or more) since the grant date. In order to determine the effects on the shareholders’ value, the cumulative abnormal returns (CAR) were used. This is calculated based on the abnormal returns on the shares of the acquiring company.The analysis of the data reveals that the first hypothesis must actually be adopted. The chance that an overconfident CEO enters into a M&A is greater than the probability of a M&A by a non-overconfident CEO. The odds ratio is 1.3 and 1.6 for the Longholder and Holder 67 respectively. The second hypothesis must be rejected. The data in this research show that a majority of M&As are successful in terms of increased shareholder value. In 45% of the cases there is no added shareholder value. In addition, the average CAR is positive (26 basis points). With regard to the relationship between overconfident CEOs and shareholder value, there is no clear picture from the available data. Based on the statistical tests, there is no significant difference between the overconfident and non-overconfident CEO. It is remarkable that when using the Longholder classification, the overconfident CEO achieves on average a higher CAR relative to his non-overconfident colleague (36 and 20 basis points, respectively). For the Holder 67 classification the non-overconfident CEOs score on average better than the overconfident CEOs (an average CAR of 23 and 9 basis points, respectively). This gives the research interesting differences compared to outcomes of companies in the United States. These differences are a good starting point for further research to sharpen the theory of overconfident CEOs, but also to further improve the theories about the Anglo-Saxon and the Rhineland model.