Three Essays on Overconfidence

This dissertation consists of three essays examining the effects of overconfidence on decision making. In the first study, I explore the role of board network centrality in mitigating the effects of CEO overconfidence on acquisition decisions. From the perspective of information processing, I argue that more centrally connected boards can guide overconfident CEOs’ attention toward more valuable information, thereby constraining their over-optimism in decision-making. Moreover, I propose that female board representation improves information processing and in turn, strengthens the effect of board networks. I test and confirm my arguments in the context of corporate acquisition. My analysis of 2160 firms from 2002 to 2018 in the context of corporate acquisition supports the proposed two-way and three-way interactions. In the additional analysis, I explored an exogenous variable to proxy for the change of board network centrality and demonstrated the validity of my main results. In the second study, I explore how overconfidence influence CEO decision-making during acquisition waves. Overconfident CEOs are frequently criticized for making value-destroying corporate acquisitions in which they excessively acquire and overpay. I argue that overconfident CEOs often create value and deliver better performance in the acquisition waves given that the motivation and the requirement for action speed for acquisitions that occur in waves are different from those in other acquisition contexts. Specifically, I hypothesize and find that overconfident CEOs are more likely to capture preemption opportunities by acting earlier in acquisition waves, and such rapid moves enable overconfident CEOs to seize high-quality targets or targets with cospecialized assets with lower costs, leading to better acquisition performance. In addition, I find that in acquisition waves, organizational acquisition experience hampers value-add because it reduces overconfident CEO action speed, and associated r