Journal of Service Science and Management

Volume 10, Issue 3 (June 2017)

ISSN Print: 1940-9893   ISSN Online: 1940-9907

Google-based Impact Factor: 1.25  Citations  h5-index & Ranking

Executives’ Overconfidence, Political Connection and Acquisition Premium of Enterprises

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DOI: 10.4236/jssm.2017.103022    1,394 Downloads   1,946 Views  Citations
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ABSTRACT

Based on the behavioral finance, the study explores the relationship and mechanism among the political connection, executives’ overconfidence and acquisition premium in the specific institutional context of China’s transitional economy. The empirical study of the acquisition events of all A-share listed companies from 2007 to 2014 shows that the psychological bias of the executives’ overconfidence has significantly enhanced the size of premium paid for the acquisitions after controlling for four other factors that may affect the acquisition premium; The political connection will weaken the influence of executives’ overconfidence on the acquisition premium; However, political connection level is not necessarily an important safeguard against weakening the impacts of the executives’ overconfidence. The results show that enterprises with overconfident executives need to correctly examine the advantages and disadvantages in the process of political connection construction, further improve the corporate governance mechanism, and use benign political connections to help overconfident managers make scientific and reasonable investment decisions, and finally help enterprises to realize healthy development.

Share and Cite:

Liu, N. and Chen, W. (2017) Executives’ Overconfidence, Political Connection and Acquisition Premium of Enterprises. Journal of Service Science and Management, 10, 260-279. doi: 10.4236/jssm.2017.103022.

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