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Mergers, CEO Hubris, and Cost Stickiness

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  • Daecheon Yang

Abstract

Hubris theory documents that bidder CEOs are overconfident about deal synergies without fearing the winner’s curse. We examine the role of bidder CEOs’ hubris over merger synergies on cost stickiness in the rapidly growing Korean market. Bidder CEOs who overestimate the merged firm’s growth retain more underutilized-capacity when sales decrease than do CEOs of stand-alone firms. Optimistic bidder CEOs induce greater cost stickiness through strong and irrational self-beliefs than do optimistic nonbidder CEOs. Given the learning and self-attribution effect, optimistic bidder CEOs who experience more successful operating synergies induce stickier costs than less successful CEOs with simply optimistic views. Implications for possible overslack and cost locking from bidder CEOs’ hubris are also discussed.

Suggested Citation

  • Daecheon Yang, 2015. "Mergers, CEO Hubris, and Cost Stickiness," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S5), pages 46-63, September.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s5:p:s46-s63
    DOI: 10.1080/1540496X.2015.1062313
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    Cited by:

    1. Evans Opoku‐Mensah & Yuming Yin, 2023. "Controlling shareholders' influence on acquisition decisions and value creation: An empirical study from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1965-1980, April.
    2. Jeongseok Song & Daecheon Yang & Soonwon Kwon, 2017. "Fdi Consequences Of Downward Wage–Cost Rigidities," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1223-1244, December.
    3. Yang, Daecheon & Koo, Jeong-Ho & Kim, Jaemin, 2023. "The role of venture capitalist monitoring in mitigating cost stickiness: Evidence from Korea's IPO market," Finance Research Letters, Elsevier, vol. 52(C).
    4. Ibrahim, Awad Elsayed Awad & Ali, Hesham & Aboelkheir, Heba, 2022. "Cost stickiness: A systematic literature review of 27 years of research and a future research agenda," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    5. Le, Anh-Tuan & Tran, Thao Phuong & Cheng, Tzu-Chang Forrest, 2022. "Do female directors mitigate asymmetric cost behavior? Evidence from international data," Finance Research Letters, Elsevier, vol. 49(C).
    6. Wanjiao Jia & Ting Yang & Xin Zhang, 2023. "The rise of robots and the fall of cost stickiness: Evidence from Chinese manufacturers," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3147-3171, September.
    7. Yang, Daecheon & Song, Jeongseok, 2018. "Impact of wage rigidity on sovereign credit rating," Emerging Markets Review, Elsevier, vol. 34(C), pages 25-41.
    8. Khedmati, Mehdi & Sualihu, Mohammed Aminu & Yawson, Alfred, 2020. "CEO-director ties and labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    9. Jennifer Kunz & Lara Sonnenholzner, 2023. "Managerial overconfidence: promoter of or obstacle to organizational resilience?," Review of Managerial Science, Springer, vol. 17(1), pages 67-128, January.
    10. Yang, Daecheon & Kim, Hyuntae, 2020. "Managerial overconfidence and manipulation of operating cash flow: Evidence from Korea✰," Finance Research Letters, Elsevier, vol. 32(C).

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