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CEOs may try to acquire other companies in order to signal dominance within their firm. At least this is my interpretation of this article in the Sept. Journal of Economics and Business:
Logistic regression and Australian data … suggest that both CEO overconfidence and CEO dominance are important in explaining the decision to acquire another firm. When compared to existing US studies, the evidence on CEO overconfidence is robust across two different financial and corporate governance systems. Our results also indicate that CEO dominance is at least as significant as CEO overconfidence in the decision to undertake an acquisition.
Humans constantly struggle to achieve and signal dominance over each other. Since in equilibrium more dominant CEOs are in fact better able to push through an acquisition, doing so is a credible way to signal that you do in fact dominate decision making in your firm. And since signals must always "overdo" it to be credible, this may explain why acquisitions appear to be "overconfident."
Btw, I’ve been wondering: what fraction of a CEO pay is for the value he adds to key decisions, versus the value he adds by being an impressive person for employees to look up to, outsiders to meet, admire, feel comfortable with, and so on?
Acquisitions Signal CEO Dominance
While I read this, the global warming comes to forefront and I see the CEO name rephrased to CEO, Chief Environment Officer renaming the CEO Chief Executive Officer as archivedCan this set a stage for a real wealth that is in the pipeline?
I thank youFirozali A Mulla MBA PhDP.O.Box 6044Dar-Es-SalaamTanzaniaEast Africa
SirI am surprised at the criticism aimed at Obama or Clinton or Bush. The reason is simple. This is simple. Does it give us any benefits? Is there any improvement in the word that we throw with al the might? No. Think how many you already have the eyes piercing words that have not changed anything past nor brought you the Katrina victims, the Tsunami victims’ pledge that is still not fulfilled, these are but few of the promises made not happened. When you consider the span of the seat the presidents occupy in the posh leathered back, there is still more then what they can do.. However, this is not done. Now we come to new baby kissers. Say I. The fighting politicians all the might will come and tell you that your child is very sweet kiss the child then ask the secretary to give the strongest detergent to get rid of the smell. That is politics. The problem is we know we vote for change and that is the promise always, there is never the change. So why do we scream change for all. We hardly see any change since year in tax or the medicals and schools benefits. The politicians are bigger reptiles then the chameleon changing colors. One day it will be subsidy but there is increase in the medical or SEC comes in to check the books. UN is the pseudo body of the White House so you see little in Darfur but all want the peace. Talk of recent events Pakistan Bhutto is dead; Scotland Yard goes after the roads have been swept clean by powerful water splashed. No trace. Then of course, we will have the new Musharaf bigger tyrant then ever. He has been in the military. His grips are now stronger. However, we will also hear the politicians shouting, "We need to on course in Pakistan because of Taliban, Osama, and we cannot leave Iran as we have more infrastructures to build. All lies and more lie about the missile shield. The two ways of talking of the nuke program. One for Iran, one for Israel. We have three standards everywhere.To chop off any we will elect a new president and another listening to the changes and promise. Why cannot we be a little tolerant and let them do what they want to do without our no need advices. Change indeed. Has anyone changed the stance in the global warming? Bush is counting days in his office and still the strong shots of veto ring out. Why do we have this veto?I thank youFirozali A Mulla MBA PhDP.O.Box 6044Dar-Es-SalaamTanzaniaEast Africa