CEO NARCISSISM AND THE TAKEOVER
PROCESSe的过去分词
Nihat Aktas
EMLYON Business School, 23 av. Guy de Collongue, F-69130 Ecully, France.
Eric de Bodt
Univ. Lille Nord de France, European Center for Corporate Control Studies, 1 place Déliot - BP381, F-59020
Lille, France. eric.debodt@univ-lille2.fr
Helen Bollaert
Univ. Lille Nord de France, European Center for Corporate Control Studies, 1 place Déliot - BP381, F-59020 Lille, France and IESEG School of Management, Audit and Control Department, 3 Rue de la Digue, 59000 Lille,
France. h.bollaert@ieg.fr
Richard Roll
UCLA Anderson, 110 Westwood Plaza, Los Angeles, CA 90095-1481, USA. rroll@anderson.ucla.edu
This draft: July 8th, 2010
CEO NARCISSISM AND THE TAKEOVERdrink的过去式和过去分词
PROCESS
Abstract
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We examine the influence of both acquirer and target CEO narcissism on the
takeover process. We measure CEO narcissism using patterns of personal
pronoun usage in more than 1,700 transcripts of CEO speech. Information
on the private part of the takeover process is collected in Security and
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Exchange Commission (SEC) filings. Our main findings are that (1) Higher
levels of acquirer CEO narcissism make it more likely that the buying firm
initiates the deal; (2) More narcissistic acquiring CEOs are associated with a
shorter the private takeover process from the initiation of the transaction to
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the public announcement of the agreement; (3) Higher levels of target CEO
narcissism are linked to higher bid premiums; and (4) Acquiring firm
shareholders react less favorably to a takeover announcement when the
target CEO is more narcissistic. Our results make a strong ca for the
impact of CEO psychological characteristics on many dimensions of the
takeover process.
1. Introduction
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Recent literature in mergers and acquisitions (M&A) has shown the importance of CEO psychological characteristics in explaining acquisitiveness and value effects (Malmendier and Tate 2008). A parate stream of M&A rearch has provided detailed analys of the private takeover process which reveal many new features of takeover transactions (Boone and Mulherin 2007, 2009). Our paper aims to link the insights gained from the two streams of rearch by documenting the effect of CEO psychological characteristics on the takeover process, including its private aspects.
The importance of CEO psychological characteristics in the M&A context was first suggested in Roll (1986). The paper describes how loss to acquiring shareholders on the announcement of a deal may be caud by hubristic CEOs who overbid for a target as they overestimate both synergies and their ability to extract them. Subquently, rearchers in strategic management and in finance have tested the empirical implications of the hubris hypothesis. Their findings show that more hubristic CEOs tend to offer higher bid premiums (Hayward and Hambrick 1997), and that the markets react less favorably to acquisitions carried out by overconfident CEOs (Malmendier and Tate 2008).
Rearch on the private part of the takeover process has described its hitherto undocumented complexity. First, one-one-one negotiations do not em to be the overwhelmingly dominant lling
procedure that the literature previously reported. Boone and Mulherin (2007) document that half of all deals are some form of auction with more than one bidder, the remaining half being one-on-one negotiations. This figure far exceeds the proportion of competitive deals inferred from public takeover contests. For example, Betton et al. (2009) report that around 8% of their sample of public takeover contests involves multiple bidders. Second, deal initiation has become a topic of rearch in itlf. In a wider study of the effects and determinants of deal initiation, Simsir (2009) reports that around 41% of transactions are initiated by targets.
We identify two areas which existing rearch fails to address completely. First, in the M&A literature, papers deal almost exclusively with the link between the CEO's psychological characteristics and value effects and the propensity to acquire, but do not consider the multiple aspects of the takeover process (e.g., bidding behavior, initiation, process length). Second, rearch to date in M&A only analyzes the effect of the psychological characteristics of the acquiring CEO. However, an M&A transaction is a process involving two parties, and the interplay between the acquiring and target CEO has been largely ignored by the literature. Our study address the two issues by bridging the gap between rearch into the private takeover process and the effect of both target and acquirer CEO psychological characteristics.
We choo to focus on CEO narcissism for five main reasons. First, narcissism is a well-defined concept and is grounded in psychology theory. There is a generally accepted list of clinical criteria for
diagnosing narcissistic personality disorder (American Psychiatric Association 1994). Second, narcissism is a multi-dimensional concept which means that it predicts attitudes (cognitive aspect), behaviors (motivational aspect) and the way narcissists behave towards others (interpersonal aspect). The cognitive aspect of narcissism probably overlaps somewhat with overconfidence as it states that narcissists consider themlves to be superior to others (Chatterjee and Hambrick, 2007). The motivational aspect defines narcissists' constant need for admiration, and the interpersonal aspect characterizes the manipulative nature of narcissists and their lack of empathy (American Psychiatric Association 1994), which are of paramount importance in an M&A deal involving acquiring and target CEOs. Third, narcissism is an ambivalent concept. While it is generally considered to be an ego-pathology (American Psychiatric Association 1994), it may also have some properties which are desirable in CEOs (Maccoby 2000). Fourth, it is possible to capture narcissism in large samples of individuals using theoretically-grounded indirect measures (Raskin and Shaw 1988). Finally, existing literature in strategic management makes a convincing ca for th
e importance of CEO narcissism in explaining firm activities and outcomes (Kets de Vries and Miller 1985; Chatterjee and Hambrick 2007).
We measure the narcissism of acquirer and target CEOs by analyzing personal pronoun usage. The u of first person singular pronouns in speech is correlated with narcissism scores captured using tried and tested direct measures (Raskin and Shaw 1988). We estimate a narcissism score for the CEOs in our M&A sample by estimating the proportion of first person singular pronouns to total first person pronouns in CEO speech taken from transcripts of interviews. We are able to estimate narcissism scores for both the acquiring and target CEOs for a sample of 137 M&A deals over the period 2002 to 2006. The mean narcissism score for acquirer CEOs is 0.211, while that of target CEOs is 0.181. The difference is statistically significant and shows that, on average, acquirer CEOs in our sample tend to be more narcissistic than target CEOs.
We consider four aspects of the takeover process, which we relate to the degree of narcissism of both acquirer and target CEOs: the identity of the party initiating the takeover process (i.e., whether the initiator of the transaction is the target or the acquirer), the length of the private takeover process, the bid premium and market reactions around the announcement date. We expect that higher levels of acquiring CEO narcissism will make it more likely that the acquirer initiates the trans
action and will lead to a shorter private takeover process. We posit that narcissistic target CEOs will extract higher bid premiums from the merger negotiations, and that higher target CEO narcissism will lead to less favorable market reactions towards the acquiring firm. Our results support all four of our hypothes. The analysis of deal initiation shows that narcissistic acquirer CEOs are more often the initiator of the transaction. Our cond t of tests shows that acquiring CEO narcissism is negatively related to the length of the private takeover process. The findings are consistent with the motivational aspect of narcissism, as narcissists need to undertake highly visible actions to feed their lf-image (Chatterjee
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and Hambrick 2007). Higher levels of target CEO narcissism are linked to higher bid premiums and to lower returns to acquiring firm shareholders, suggesting that the interpersonally exploitative aspect of narcissism (American Psychiatric Association 1994) caus narcissistic target CEOs to extract a better price from negotiations and engenders an unfavorable reaction among acquiring firm shareholders. Our results are robust to alternative specifications of the narcissism measure, and also to additional tests taking into account the potential simultaneity between deal initiation and choice of the lling procedure (auction versus negotiation) and possible endogeneity between the choice of the lling procedure and bid premium/returns.
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Our paper makes three main contributions to the existing literature. First, we examine the effect of CEO narcissism on the takeover process for both target and acquirer CEOs on a matched sample of deals. Second, we analyze the effect of CEO narcissism over the whole private takeover process, starting with deal initiation and going through to the announcement of the merger agreement. Third, we study the effect of narcissism on the takeover process becau it is a well-defined concept grounded in psychology theory and we are able to measure it in our sample of CEOs using a theoretically sound indirect measure validated in rearch in psychology.
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The paper is organized as follows. Section 2 introduces the narcissism concept, reviews its importance in explaining CEO behavior, and describes the private takeover process. It then goes on to lay out our hypothes for the effect of CEO narcissism on the takeover process. Section 3 is given over to the prentation of our data and our methodology. Section 4 summarizes our main findings and robustness checks. Section 5 concludes.
