The behavioral finance literature attributes failed M&As to CEO overconfidence. We investigate the source of CEO overconfidence that leads to failed M&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&As by overconfident CEOs are mainly led by power-driven overconfident CEOs.

Keywords: CEO Overconfidence; CEO Power; Mergers and Acquisitions

JEL classification: D91; G34; G41; M12