Review of Managerial Overconfidence and Corporate Acquisition Goodwill Impairment Research

In recent years, the large amount of goodwill impairment caused by high-priced mergers and acquisitions has also aroused widespread discussion. Why do companies purchase at a high premium? What effect does a high premium have on the impairment of goodwill? With the development of behavioral finance, this article uses the perspective of overconfidence in this theory, and answers the above two questions by reviewing the domestic and foreign literature. We find that the overconfidence in management tends to form the overpayment in corporate acquisitions, and the overpayment is more likely to lead to the goodwill impairment. At last, this article also pro-poses future research directions and I hope it can provide theoretical references for future related research.


Introduction
In general, on the one hand, the impairment of goodwill is like a life-saving sword that will always hang on the company's head. It will directly devour the company's operating profit and drag down its development. On the other hand, the impairment of goodwill has also become the "golden stone"

Managerial Overconfidence and M & A Activities
Foreign scholars conduct pioneering exploration of the economic consequences of manager's overconfidence earlier and reach more mature conclusions. The research focuses on three major decisions that are closely related to corporate development: M & A decisions (external expansion), investment decisions (internal expansion), and financing decisions. The iconic research result on M & A is the "Hubris Hypothesis" which is first proposed by Roll (1986). It believes that executives of the acquirer often presumptuously presume that their valuation is correct, resulting in overestimation of M & A income. The paid purchase pre-mium (the difference between the M & A price and the market price of the target company before the announcement) is actually higher than the economic added value which is generated by the direct combination of real companies. In fact, the potential synergies may not exist at all or are much lower than expected [1]. The conclusions obtained by Hayward and Hambrick (1997) also support Roll's view. They think that excessively confident managers will underestimate the difficulties of integration after mergers and acquisitions. In that case, these managers may be too confident in estimating the development prospect of the merged company and pay too much money, which result in a decline of the final M & A performance [2]. Malmendier and Tate (2005) study the relationship between managerial overconfidence and mergers and acquisitions. They assume that there are only two types of CEOs: one is a rational, that is, no overconfident CEO; the other is an overconfident CEO. The differences between the two are mainly reflected in two aspects: First, overconfident managers will overestimate potential synergies. They believe that their leadership ability is better than the average, and they have "illusions of control", which makes them underestimate the risks of mergers and acquisitions, leading to overestimation of synergies; Second, an overconfident CEO mistakenly believes that the market value of the company has not been properly evaluated, which causes the CEO to overestimate the company's potential future profits [3]. Brown and Sarma (2007) use an empirical study of Australian and American companies and find that managerial overconfidence is positively correlated with M & A behavior choices. This conclusion is completely robust in two different financial and corporate governance systems [4]. Malmendier and Tate (2008) have further pushed the research on overconfidence and corporate mergers and acquisitions to a higher level, which mainly manifest in the choice of indicators of overconfidence substitution variables. They use the manager's response to stock options and the media's evaluation of managers. The research results find that overconfident managers are more inclined to corporate mergers and acquisitions, which is more than 65% compared with rational managers, and when corporate funds are abundant and undertaking diversified mergers and acquisitions, overconfident managers are more inclined to corporate mergers and acquisitions [5].

Goodwill Impairment and M & A Premiums
The impairment of goodwill is accompanied by the merger and acquisition of enterprises. It refers to the related impairment loss recognized by the enterprise after the good will acquired from M & A is tested for impairment. As a special asset, goodwill cannot bring future benefits to the company independently of other assets or asset groups. Therefore, the recoverable amount of goodwill cannot be separately confirmed. It must be combined with other assets or asset groups when performing impairment tests. For the research on the impairment of goodwill itself, the current scholars mainly focus on the motivation and economic consequences of the impairment of goodwill, and there are relatively few studies on merger and acquisition activities, mainly on the relationship between merger premium and goodwill impairment. Some scholars believe that the higher the M & A premium paid during M & A transactions, the greater the risk of goodwill impairment. Sirower (2001) points out that the M & A consideration has an important impact on whether or not the expected results can be achieved after the completion of the merger. The probability of maintaining high operating performance after the merger declines with the increase of the M & A premium. Once the company's operating performance cannot achieve the expected results after the merger, the risk of goodwill impairment will increase [15]. Hayn and Hughes (2006) study the predictability of goodwill impairment, and believe that the characteristics of the merger and acquisition at that time (acquisition premium, merger costs, payment methods, etc.) have an explanatory power for goodwill impairment in the future. The research finds that the acquirer's excessive payment has a positive correlation with impairment losses [16]. Gu and Lev (2011) believe that the loss of goodwill is due to the unwise consequences of acquisitions made by companies whose share prices are overvalued at the time of the original transaction, and that it is a potential overpayment, which may lead to possible impairment of goodwill in the future [17]. Maria Elena Olante (2013) believes that the overpayment index at the time of merger and acquisition can predict the impairment of goodwill to a certain extent. He uses two different methods when defining the premium index: one is the difference between the corporate value of the target company and the market value of the target asset, and the other is the part where the purchase price of the purchaser is significantly higher than the book value of the purchased asset, that is, the book value premium. The study finds that the book value premium combined with other overpayment indicators (number of  [18]. Domestic scholars Chen Min and Huang Bin (2015) point out that if over-pricing is paid during mergers and acquisitions, which results in a higher premium and the excessive goodwill, there will be a risk of impairment later. It adversely affects the company's long-term operating performance [19].

Summary
The review of the related research literature above has important practical significance. However, we also find that although there is a wealth of research at home and abroad, involving many aspects of managerial overconfidence and goodwill impairment, a systematic and complete theoretical and empirical research system has not yet been established. In this regard, this article raises some of the current research deficiencies and possible future research directions.

Research Significance
The literature review of this paper starts from the individual characteristic of managerial overconfidence, which breaks the traditional rational man hypothesis. It finds that overconfidence behavior will make so bad M & A decisions that lead to a large amount of M & A goodwill impairment in the later period. From the company level, this conclusion above provides guidance and experience for the selection, supervision and training of managers in the daily operation process of enterprises. It also strengthens the attention to the psychological state of managers to alleviate the lack of managers' own understanding, which is conducive to the real realization of the company's value.
From the view of report users, this conclusion above is also an important reminder. Statement users should learn to identify effective and ineffective mergers and acquisitions. It is blind to follow the trend and think that high-priced mergers and acquisitions are good news for the market. They are supposed to make investment decisions more carefully and avoid investment losses caused by goodwill impairment risk to a certain extent.

Deficiencies in Existing Research
First, the introduction of behavioral finance theory and the use of overconfidence to explain the reasons for corporate mergers and acquisitions do have some explanatory power, but they are still not very persuasive. The reason is that there are many and complicated factors that affect corporate mergers and acquisitions. So it is a bit weak to reveal only from the perspectives of rationality and bounded rationality, which is also the main reason for different research results that have appeared over the years.
Second, at present, the relationship between managerial overconfidence and goodwill impairment is mostly reflected by the M & A premium as an intermediate variable. There is no direct theory or empirical test to verify whether the two are indeed causal or otherwise, which needs further research. Open Journal of Social Sciences Third, the research on corporate mergers and acquisitions is mainly based on western theories and methods. It can be seen from the measurement of overconfidence in the review that the selection of indicators of overconfidence has an important impact on the research. In fact, there are multiple methods to measure overconfidence, but there is no set of overconfidence measurement methods that are more suitable for mergers and acquisitions in China.

Possible Future Research Directions
First, establish a systematic research on corporate mergers and acquisitions.
There are many and complicated factors that affect corporate mergers and acquisitions, such as internal management and external macro environment, etc.
The study of corporate mergers and acquisitions from the perspective of rational assumptions and bounded rational assumptions will inevitably result in deviations. Therefore, it is necessary to use multidisciplinary theories and methods to conduct systematic research on corporate mergers and acquisitions.
Second, improve the overconfidence index measurement method. Although some scholars have used different indicators to measure the indicator of overconfidence, they have not formed a more mature method, and these methods are used in the context of western developed countries. Therefore, it is an important issue to explore the method of measuring overconfidence in China's context.

Conflicts of Interest
The author declares no conflicts of interest regarding the publication of this paper.