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Managerial Overconfidence and the Value Adjustment Mechanism

DOI: 10.4236/ojacct.2018.71007, PP. 93-106

Keywords: Managerial Overconfidence, Value Adjustment Mechanism, The Promise of Profit Growth Rate, Mergers and Acquisitions Performance

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Abstract:

Using the M & A event of A-share listed companies from 2008 to 2013, which contains the value adjustment mechanism, as a sample, the paper is intended to explore the influence of managerial overconfidence on the performance growth rate and the relationship between the promise of profit growth rate and the performance of M & A. The results show that overconfident managers tend to accept higher performance growth rate, and this tendency is more obvious in private enterprises. The further study found that the higher the promise of profit growth rate, the better the performance of M & A., but when the overconfident manager makes a higher level of performance commitment, the market will react negatively. This mainly depends on the value adjustment mechanism to a certain extent, can alleviate the information asymmetry of both sides, and encourage the parties to participate in the process of integration after merger, but when overconfidence managers promise higher earnings growth, the investors tend to interpret it as manager’s shortsighted behavior of lack of awareness of market risk.

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