I believe I can fly: how target venture CEO overconfidence affects acquisition completion

Plain English Summary Many acquirers consider target CEO characteristics when deciding whether to buy a venture. Analyzing a sample of acquisitions within the U.S. computer industry, we find that the extent to which target CEOs have excessive self-confidence reduces the likelihood of acquisition completion. This is because CEOs with excessive self-confidence can be direct and aggressive when negotiating with acquirers. This effect is stronger both when ventures have more technological resources and exhibit higher growth, and also when acquisition exits within an industry are more prevalent. Buyers are advised to be more flexible and prepared when interacting with highly confident entrepreneurs. Abstract This study examines the role of target venture CEO overconfidence in the acquisitions initiated by established firms. We postulate that the more confident a target venture CEO, the greater the difficulty for an acquirer to negotiate and integrate with the target, reducing the likelihood of a completed acquisition. We further contend that this proposed main effect may vary depending on certain contextual factors. Results based on a sample of acquisitions within the U.S. computer industry suggest that target venture CEO overconfidence reduces the likelihood of acquisition completion and that this effect is contingent on crucial boundary conditions.

Automated summary

This study examines the impact of target venture CEO overconfidence on the outcomes of acquisitions. The findings show that overconfident CEOs can negatively affect the negotiation and integration processes, leading to a lower likelihood of successful acquisitions.