Sunday, June 15, 2008

STUDY: CEOS OVERCREDIT THEMSELVES FOR SUCCESSES

SCIENTIFIC BLOGGING Sometimes you just get lucky but overconfident CEOs never talk about good luck when things go well, just bad luck when there are problems, according to a paper in the current issue of Management Science.

Whether to engage in mergers and acquisitions is one of the most important decisions top managers make, the authors write. While many of the factors influencing these decisions may be based on objective financial metrics, there is increasing evidence that behavioral biases play an important role in managerial decision making.

Professors Matthew T. Billett and Yiming Qian of the University of Iowa based their results on a sample of public acquisitions between 1985 and 2002. Over this period, U.S. public companies acquired $3.7 trillion worth of other U.S. public companies.

The authors explore one such bias -- managerial overconfidence -- and find evidence suggesting CEOs develop overconfidence through 'self-attribution bias' when making merger and acquisition decisions. Individuals subject to self-attribution bias overcredit their role in bringing about good outcomes and underestimate the role of luck.

Consistent with this, they find that CEOs appear to overly attribute their role in successful deals, leading to more deals even though these subsequent deals are value destructive.

They also find evidence that CEOs alter their stock holdings prior to deals in a pattern consistent with overconfidence in the outcome of these subsequent deals.

The authors advise that CEOs be particularly cautious and disciplined when engaging in acquisitions following prior success. Boards and other stakeholders should also ensure that any proposed deal is judged on its own merits and is not justified on the basis of prior CEO success in mergers and acquisitions, they say.

2 Comments:

At June 17, 2008 9:27 AM, Anonymous Anonymous said...

What's lucky for CEO's is that 6 billion people still do not understand that only work creates wealth and that the maximum individual contribution that is possible to make to the total pool of wealth by one's own sacrifice to working is limited, which fact means the pool of wealth is finite, which fact means that under unlimited-personal-fortunes capitalism (as opposed to pay-justice capitalism), in order to overpay a few, the many who sacrificed equally have to be stolen from to fund the overpay because there is nowhere else for the overpay to come from but from underpay which is theft of earnings.

Which means that our whole system for as long as we allow unlimited personal fortunes to be withdrawn from a finite pool, requires and endorses the legal theft of earnings from many, the legal transfer of wealth from earners to nonearners - when only work creates the wealth in the first place.

Steal people's rightful earnings and you steal their food and water and shelter and education and healthcare...and every theft comes with an angry person attached and you end up with a world where rich and poor are writhing in hell unnecessarily and headed for self-destruction via the violence that ever-escalates as the robbed people try forever to get justice.

we humans can any day now decide to get rid of the most self-and-other injurious injury there is, overpayunderpay (now at extremes...an inequity factor residing in the billions), and have pay justice for all instead... or we humans can have history-on-steroids-kaboom, now that we're living in the age of e=mc2

This species will rid itself of the diabolically stupid, patently unjust idea to allow unlimited personal fortunes capitalism, or we will succumb to the results of having the next and the next and the next wealthpower giants, ad infinitum.

only work creates wealth.

it is impossible for anyone to work - to sacrifice their time and effort to working - a million, let alone a billion times average.

material inequality is the extreme maldistribution of the very earth and all the works of man upon it. THIS IS THE ISSUE THAT CUTS ACROSS ALL OTHER ISSUES.

don't fix overpayunderpay, and you can fix nothing.

wake up and smell the uranium, humanity.

the rich get richer and the poor get poorer means the rich are getting more and more per unit of work and the poor are getting less and less per unit of work.

when only work creates wealth!

ya know what? Homer Simpson is smarter than most people.

Homer is at least capable of having "D'oh!" moments when he suddenly realizes how very wrong he has been getting it.

we do not have to give our money away to make it work for commerce - no matter what the cheap-labor predators want you to believe.

the world could stop giving away it's earnings to the true recipients of welfare doles: the billionaires.

if it wanted to.

"If there were but one person in the world, it is manifest that he could have no more wealth than he was able to make and save. THIS is the natural order." - Henry George.

This is the sanity, the common sense, the whole-picture reality that the richest have driven us all far from.

 
At June 18, 2008 10:56 AM, Anonymous Anonymous said...

Or to put it another way, in a world built on inequity, only the evil will end up with money and power.

 

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