The role of procedural rationality in debiasing acquisition decisions of overconfident CEOs

Research Summary In corporate acquisitions, overconfident chief executive officers (CEOs) often make biased decisions, subsequently paying unjustifiably high acquisition premiums. We investigate the predeal process in which premium is decided upon and, drawing from procedural rationality theory, argue that pursuit of greater through slow-paced processes reduces tendency CEOs to inflate The empirical results based on a sample acquisitions involving publicly held US firms show tend pay premiums, replicating earlier findings such relationship. More importantly, overpay for decreases under conditions are slower pace. Managerial exhibit excessively levels confidence their ability successful acquisitions. Driven by belief ability, end up overpaying Our study provides suggestive evidence setting slow pace an important prerequisite acquiring firm and its board directors attenuate inflating effect CEO overconfidence arguments imply boards should if exhibiting signs overconfidence.