Selected deal characteristics of mergers and acquisitions and chief executive officer overconfidence: A South African study
| dc.contributor.advisor | De Vries, Annalien | en_ZA |
| dc.contributor.advisor | Viviers, Suzette | en_ZA |
| dc.contributor.author | Louw, Kaelin | en_ZA |
| dc.contributor.other | Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management. | en_ZA |
| dc.date.accessioned | 2025-03-28T12:38:34Z | |
| dc.date.available | 2025-03-28T12:38:34Z | |
| dc.date.issued | 2024-12 | |
| dc.description | Thesis (MA)--Stellenbosch University, 2024. | en_ZA |
| dc.description.abstract | International research reports that the failure rate of mergers and acquisitions (M&A) is between 60 and 90 percent, with experts claiming that this statistic will not improve soon. Failure can be defined as short- and long-term underperformance. Several deal characteristics have been associated with such underperformance including deal rationale, premium paid, deal size, financing structure and the number of deals previously completed by the acquirer. Behavioural finance scholars have linked cognitive/behavioural biases to these aspects of business combinations. Theory proposes a strong association between chief executive officer (CEO) overconfidence and certain deal characteristics, which in turn contributes to the large M&A failure rate. Numerous studies have considered the relationship between M&A deal characteristics and CEO overconfidence. Most of these studies were conducted in developed markets indicating that there is limited literature on this relationship in an emerging market context. The economic and political environments differ greatly between emerging and developed markets, and the different types of cultures might impact executives’ decision making in M&A-related decisions. It is imperative that the relationship between deal characteristics and CEO overconfidence is understood holistically. South Africa was selected as the setting for this study and contributes to the existing body of knowledge on business acquisitions and behavioural finance. A comprehensive dataset was compiled comprising of five deal characteristics and CEOs’ levels of overconfidence for the selected acquiring companies listed on the Johannesburg Stock Exchange (JSE) over the period 2016 to 2023. The CEO overconfidence data were calculated using the conventional Longholder measure along with a novel overconfidence proxy, namely, the Receptiviti score. The control variables included CEO age, gender, tenure, educational background, nationality and the board independence of the acquirer. Deal characteristic data and the data for six control variables were retrieved from the Bloomberg (2024) database. The final sample consisted of 119 deals conducted by 78 CEOs over the research period. Two sets of hypotheses were formulated. The first set of hypotheses centred on the associations between CEO overconfidence and the control variables. The second set of hypotheses investigated the relationships between the deal characteristics and CEO overconfidence. A descriptive analysis was employed to summarise the dataset including measures of central tendency, dispersion and shape. Thereafter, the associations between the control variables and CEO overconfidence (the first of two sets of hypotheses) were analysed using cross-tabulations with Chi-Square tests and correlation analyses. Cross-sectional and logistic regressions were then utilised to investigate the hypothesised relationships between the deal characteristics and CEO overconfidence (the second set of hypotheses). Inferential tests uncovered a statistically significant negative correlation between CEO age and overconfidence, proxied by the Receptiviti score. This finding meant that younger CEOs in the sample were more overconfident than their older counterparts. Additionally, it was uncovered that CEOs with financial backgrounds had higher levels of overconfidence than their counterparts who had other educational backgrounds. The researcher further discovered that a higher board independence was related to lower levels of CEO overconfidence. More independent non-executive directors (INEDs) on the acquiring companies’ boards seemingly kept executives’ overconfidence in check over the research period. The empirical results further showed that overconfident CEOs pursued more deals during their tenure, which makes the risk of failure greater. The study finally demonstrated that overconfident CEOs preferred to undertake deals within the same industry, in other words, non-diversifying deals. The agency, stewardship and upper echelon theories were applied to interpret the findings of this study. This study made academic contributions to the field of behavioural corporate finance and M&As within the South African context. It is the first study to investigate the relationship between South African M&A deal characteristics and CEO overconfidence. In addition, a pioneering academic contribution was made by highlighting the novel Receptiviti overconfidence proxy. Practical contributions were made to several stakeholders. Nomination committees and shareholders are encouraged to conduct more thorough investigations of prospective CEOs prior to their nomination and voting for their election. Shareholders and governance committees are also urged to appoint more INEDs to monitor and counteract the risks posed by excessively overconfident CEOs. While M&A success or failure was not directly measured in this study, emphasis was placed on deal characteristics that may be linked to underperformance and subsequent failure. | en_ZA |
| dc.description.version | Masters | en_ZA |
| dc.format.extent | 176 pages | en_ZA |
| dc.identifier.uri | https://scholar.sun.ac.za/handle/10019.1/131809 | |
| dc.publisher | Stellenbosch : Stellenbosch University | en_ZA |
| dc.rights.holder | Stellenbosch University | en_ZA |
| dc.title | Selected deal characteristics of mergers and acquisitions and chief executive officer overconfidence: A South African study | en_ZA |
| dc.type | Thesis | en_ZA |