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The Blind Power: Power-Driven CEO Overconfidence and M&A Decision Making

The behavioral finance literature attributes failed M&amp;As to CEO overconfidence. We investigate the source of CEO overconfidence that leads to failed M&amp;As. Among various determinants of CEO overconfidence, we propose that power-led CEO overconfidence delivers undesirable consequences in corporate investments. Using CEO-level data, we find that CEO power increases the probability of a CEO being overconfident. We also show that power-driven overconfident CEOs tend to complete more deals regardless of circumstances, do stock acquisitions, and make value-destroying acquisitions, relative to non-overconfident CEOs. The results suggest that previous studies on M&amp;As by overconfident CEOs are mainly led by power-driven overconfident CEOs.