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The Impact of Market-Nurtured Optimism on Mergers: Empirical Evidence by the Taiwan's Equity Market

Author

Listed:
  • Pei-Gi Shu

    (Department of Business Administration, Fu Jen Catholic University, No. 510, Jhongjheng Rd., Sinjhuang Dist., New Taipei City 24205, Taiwan)

  • Yin-Hua Yeh

    (Graduate Institute of Finance, National Chiao Tung University, Hsin Chu 300, Taiwan)

  • Shean-Bii Chiu

    (Department of Finance, National Taiwan University, Taipei City 106, Taiwan)

  • Li-Hui Wang

    (Department of Finance, Chihlee Institute of Technology, Wunhua Road, New Taipei City, Banciao 22050, Taiwan)

Abstract

We create a novel measure of market-nurtured optimism in that managers become more optimistic if the market had responded more favorably, and to a larger extent to positive earnings surprises, than to negative earnings surprises. These market-nurtured managers are prone to engage in value-destructive mergers. The inclination is further reinforced by abundant internal cash. In contrast, a good governance structure mitigates the odds of engaging in mergers and the detrimental effect associated with mergers. The acquisitions launched by overconfident managers are associated with lower market value.

Suggested Citation

  • Pei-Gi Shu & Yin-Hua Yeh & Shean-Bii Chiu & Li-Hui Wang, 2013. "The Impact of Market-Nurtured Optimism on Mergers: Empirical Evidence by the Taiwan's Equity Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(03), pages 1-41.
    • Handle: RePEc:wsi:rpbfmp:v:16:y:2013:i:03:n:s0219091513500215
    DOI: 10.1142/S0219091513500215
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    Citations

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    Cited by:

    1. Kai-Shi Chuang, 2017. "The role of investment banks on the impact of firm performance in mergers and acquisitions: evidence from the Asia-Pacific market," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 677-699, April.
    2. Sanaz Aghazadeh & Lili Sun & Qian Wang & Rong Yang, 2018. "Investors’ perception of CEO overconfidence: evidence from the cost of equity capital," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 1129-1150, November.
    3. Yue Liu, 2019. "Shareholder wealth effects of M&A withdrawals," Review of Quantitative Finance and Accounting, Springer, vol. 52(3), pages 681-716, April.

    More about this item

    Keywords

    Overconfidence; mergers; corporate governance;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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