We present evidence that, following the passage of the Sarbanes-Oxley Act, firms responded to the increased requirement for outside director monitoring by substituting insiders with outside directors who have social or professional connections to their CEOs. This substitution was most...

Contingent considerations (earnouts) in acquisition agreements provide sellers with future payments conditional on meeting certain conditions. Prior research provides evidence that acquiring firms use earnouts to minimize agency costs associated with acquisitions. Using earnout fair value...

This article examines the presence of the reference price effect in mergers and acquisitions in Russia, which can act as a distortion in investor perception of the influence a deal has on a company. In this study we use the Russian market as a laboratory for the investigation of behavioral...

We examine whether rival CEOs’ overconfidence influences a focal firm’s research and development (R&D) expenditure. We propose a stylized model based on an R&D competition game with CEOs having a keeping-up-with-the-Joneses preference. Our model predicts that the overconfidence level of...

In this paper we investigate the relationship between firm-specific investor sentiment, measured by applying text analysis to news stories published by Thomson Reuters, and merger and acquisition (M&A) deals announced by US-listed companies between 1997 and 2018. We find that a more positive...

This paper finds that investors learn from their experience with corporate fraud and financial misconduct and modify their investment behavior to avoid suspicious firms and increase corporate governance efforts. More specifically, mutual funds that experienced corporate fraud at one of their...

We develop a novel measure of target shareholders’ average purchase price (TAPP). In a sample of all U.S. public firm merger offers from 1990 to 2019, we find that: (1) the offer premium is positively correlated with the ratio of TAPP to the target’s pre-offer stock price; (2) TAPP dominates...

We explore the role of cultural heritage in explaining CEOs overconfidence and its impact on the propensity and performance of corporate acquisitions. CEOs are more prone to overconfidence if the culture in their ancestral country of origin is characterized by strong individualism, independence,...

Despite the mounting evidence that stock misvaluation affects takeover characteristics and outcomes at the deal level, there remains a prolonged debate over whether mispricing drives aggregate industry-level merger activity. We depart from the extant literature and investigate whether stock...

In this paper we investigate cognitive biases as a potential reason for the varied results of M&A in emerging capital markets. We focus on two cognitive biases, CEO overconfidence and availability bias, which significantly influence CEO behavior, encouraging them to be irrational in M&A deals....