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.
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.
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Notes
In results not shown here, we have also controlled for a target entrepreneur’s education, and industry as well as startup experience. Findings with these additional control variables are consistent.
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Acknowledgements
We would like to thank Professor László Szerb and two reviewers for their developmental feedback. We also appreciate the helpful comments from Professors Koen Heimeriks, Markku Maula, Taco Reus, Karl Wennberg, and participants at the Academy of Management.
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This study is partially supported by California State University, Fullerton (Project Number: 0356621).
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Appendix
Appendix
Probit estimates of announced acquisitions
Variables | Estimates |
|---|---|
Acquirer age | − 0.08 |
(0.09) | |
Acquirer size | 0.01 |
(0.01) | |
Acquisition experience | 0.03** |
(0.00) | |
Venture capitalist TMT | 0.04** |
(0.01) | |
Industry peers’ acquisitionsa | 0.04** |
(0.01) | |
Venture capitalist | 0.06 |
(0.04) | |
Established alliance partner | − 0.02** |
(0.00) | |
Industry relatedness | − 0.03 |
(0.04) | |
Geographic distance | − 0.55** |
(0.16) | |
Target CEO founder | − 0.11** |
(0.00) | |
Target CEO tenure | 0.01** |
(0.00) | |
Target CEO age | − 0.01** |
(0.00) | |
Target CEO duality | − 0.21** |
(0.00) | |
Target CEO ownership | 0.03** |
(0.00) | |
Target CEO overconfidence | 0.02** |
(0.00) | |
Constant | − 1.74** |
(0.02) | |
Year dummies | Yes |
Industry dummies | Yes |
χ 2 | 2209.89 |
N | 685,493 |
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Weng, D.H., Yamakawa, Y. I believe I can fly: how target venture CEO overconfidence affects acquisition completion. Small Bus Econ 61, 127–151 (2023). https://doi.org/10.1007/s11187-022-00679-6
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DOI: https://doi.org/10.1007/s11187-022-00679-6