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Do Cognitive Biases Impact M&A Performance in Emerging Markets? Evidence from Russian Firms

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  • Irina Skvortsova

    (National Research University Higher School of Economics)

  • Anna Vershinina

    (National Research University Higher School of Economics)

Abstract

In this paper we investigate cognitive biases as a potential reason for the varied results of M&A in emerging capital markets. We focus on two cognitive biases, CEO overconfidence and availability bias, which significantly influence CEO behavior, encouraging them to be irrational in M&A deals. Based on 237 M&A deals closed by Russian firms during the period 2005–2019 we empirically prove that CEO overconfidence destroys value, and availability bias creates value in M&A deals in the Russian market. We show that due to the low level of corporate governance in emerging capital markets, all corporate governance mechanisms can mitigate CEO irrationalities in M&A.

Suggested Citation

  • Irina Skvortsova & Anna Vershinina, 2021. "Do Cognitive Biases Impact M&A Performance in Emerging Markets? Evidence from Russian Firms," HSE Working papers WP BRP 82/FE/2021, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:82/fe/2021
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    More about this item

    Keywords

    M&A performance; emerging capital markets; cognitive biases; CEO overconfidence; availability bias.;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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