The impact of shareholder intervention on overinvestment of free cash flow by overconfident CEOs

Kwon, Sewon; Ahn, Jae Hwan; Kim, Gi H.

doi:10.1016/j.irfa.2021.101751

Cited by 13 publications

(8 citation statements)

References 61 publications

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“…The existence of institutional shareholders in the acquirer affects M&A decision in Asia Pacific, as does the trend towards cross-border deals. This is in consistent with the characteristics of institutional shareholders, who have greater ownership than other shareholders, so that they can provide a long-term view of an investment and it is easier to regulate or control management in terms of decision making [14], one of which is M&A decision through voting rights at the GMS. When compared to institutional shareholders in developed countries, such as in US and UK, institutional shareholders in Asia Pacific are relatively smaller [6].…”

Section: Discussionsupporting

confidence: 64%

Institutional Shareholders’ Role Analysis on Cross-Border M&A Deals in Asia Pacific Region

Lestari¹,

Husodo²

2022

Proceedings of the 4th International Conference on Economics, Business and Economic Education Science, ICE-BEES 2021, 27-28 Jul

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In this competitive era, one of the key success factors for M&A deals is the role of institutional shareholders. However, each institutional shareholder has different knowledge of information. This research describes the effect of institutional shareholders on cross-border merger and acquisition deals conducted by Asia Pacific acquirers by running panel data analysis of M&A data from 2015 -2019. The results suggest that the cross-border M&A deals are likely to increase by existence of institutional shareholders. Specifically, presence of foreign institutional shareholders, independent institutional shareholders, and long-term institutional shareholders encourages company to have cross-border M&A deals. Overall, these results are in line with the view that institutional shareholders can offer better M&A deals in Asia Pacific. Acquirer firms must be able to build good relationships with institutional shareholders and manage information from them so the company's decision-making process can be profitable for all party.

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Section: Discussionsupporting

confidence: 64%

Institutional Shareholders’ Role Analysis on Cross-Border M&A Deals in Asia Pacific Region

Lestari¹,

Husodo²

2022

Proceedings of the 4th International Conference on Economics, Business and Economic Education Science, ICE-BEES 2021, 27-28 Jul

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“…Independent Directors (IND): Independent directors on the company’s board are included as a control variable. Independent directors can play a role in corporate governance and decision-making processes and are thus relevant to the analysis (Kwon et al , 2021; Lassoued and Elmir, 2012).…”

Section: Methodsmentioning

confidence: 99%

“…Numerous personality traits linked to high CEO discretion have been investigated in prior studies, with overconfidence being a prominent one (Souguir, Lassoued and Bouzgarrou, 2023). Overconfident CEOs influence a wide array of firm financial decisions, encompassing areas such as new ventures (Hayward et al, 2006), capital structure (Ben-David et al, 2013), merger and acquisition outcomes (Malmendier and Tate, 2005), innovative behavior (Hirshleifer et al, 2012) and overinvestment (Yu, 2014;Wang et al, 2016;Li et al, 2019;Kwon et al, 2021). Nonetheless, this body of research has paid relatively limited attention to the moderating influence of CEO characteristics, particularly CEO overconfidence.…”

Section: Moderating Effect Of Ceo Overconfidencementioning

confidence: 99%

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Does the sun ‘shine’ on utility firms? Evidence from pollution control bonds and overinvestment relationship

Khiari,

Khanchel,

Lassoued

2023

JFRA

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Purpose This study aims to investigate the impact of pollution control bonds (PCBs) on overinvestment within utility firms. Design/methodology/approach This empirical study analyzes a data set comprising 215 US energy firms observed from 2011 to 2021, using the ordinary least square regression with standard errors adjusted for firm-level clustering. Findings The study reveals a negative relationship between PCBs and overinvestment, indicating that PCBs are an effective tool in curbing excessive investment. Additionally, it demonstrates that chief executive officer (CEO) overconfidence diminishes the influence of PCBs on overinvestment. These findings remain robust across various metrics for measuring overinvestment and CEO overconfidence, as well as when alternative estimation methods are used. These results align with insights derived from agency theory and upper echelon theories. Research limitations/implications Regulators are encouraged to actively promote the use of PCBs as a financing tool for environmentally focused initiatives. To achieve this, regulatory bodies should enhance their presence within the utility sector, particularly in regions grappling with higher pollution levels. This requires the implementation of strategic policies and regulatory frameworks aimed at mitigating excessive investments. Simultaneously, policymakers should take proactive measures to introduce financial instruments designed to optimize investment efficiency, thus facilitating eco-friendly projects. Originality/value To the best of the authors’ knowledge, this paper holds the distinction of being the first to examine the impact of a specific type of green bond, namely, PCBs, on overinvestment. Furthermore, it contributes to the literature on personality traits, particularly within the context of the upper echelon theory, by investigating the moderating influence of CEO overconfidence.

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“…CEO overconfidence is relatively mature in the study of M&As, although previous works have only done univariate studies. CEO overconfidence is also widely used in other management research, including ambidextrous innovation (Wong et al, 2017), diversification (Andreou et al, 2019), big baths (Pierk, 2021), overinvestment (Kwon et al, 2021), and firm risk (Ali and Tauni, 2021). Many quantitative indicators have been used in the measurement of CEO overconfidence in the literature; for example, CEO shareholding (Malmendier and Tate, 2008), the relative compensation of CEOs (Huang et al, 2011), historical business performance, frequency of CEO M&As (Doukas and Petmezas, 2007), weight of manager personal characteristics (Barber and Odean, 2001), business climate index (Yu et al, 2006), CEO evaluation by mainstream media (Malmendier and Tate, 2008), and earnings forecast bias (Lin et al, 2008).…”

Section: Ceo Overconfidence and Mandasmentioning

confidence: 99%

Chief Executive Officer Proactive Personality and Acquisitions: A Fuzzy Set Qualitative Comparative Analysis of China's Listed Firms

2021

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The role of the CEO in an enterprise's management decisions renders their individual characteristics influential in decisions about mergers and acquisitions (M&As). Personal characteristics are based on many aspects, therefore, we provide a multi-angle insight into the personal characteristics of managers. Drawing on the upper echelons theory, we examine whether CEOs' proactive personality affects merger and acquisition decisions. The fuzzy-set qualitative comparative analysis (fsQCA) is performed using a sample of 64 listed firms in China for the period 2010–2019. There are three solutions for cross-industry mergers, and five for intra-industry mergers. The results suggest that: (a) proactive and overconfident CEOs are inclined toward cross-industry mergers; (b) non-proactive and low-educated CEOs are inclined toward intra-industry mergers; (c) emerging industry enterprises tend to choose intra-industry mergers; (d) overconfident CEOs are more likely to undertake cross-industry mergers in traditional industries.

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The impact of shareholder intervention on overinvestment of free cash flow by overconfident CEOs

Cited by 13 publications

References 61 publications

Institutional Shareholders’ Role Analysis on Cross-Border M&A Deals in Asia Pacific Region

Institutional Shareholders’ Role Analysis on Cross-Border M&A Deals in Asia Pacific Region

Does the sun ‘shine’ on utility firms? Evidence from pollution control bonds and overinvestment relationship

Chief Executive Officer Proactive Personality and Acquisitions: A Fuzzy Set Qualitative Comparative Analysis of China's Listed Firms

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