Cognitive Dissonance, Overconfidence, and Merger Outcome

点击翻译按钮获取中文摘要

Cognitive dissonance is the psychological stress experienced by anindividual who simultaneously holds two or more contradictorybeliefs and, as a result, feels pressure to produce consonant relationsamong cognitions to reduce dissonance. The literature whichamalgamates cognitive dissonance within finance is in its preliminarystages despite mergers and acquisitions being one of the most pivotaldecisions a company can make. Therefore, I propose coalescingFestinger's cognitive dissonance theory with financial literature andapplying it to US and UK mergers via a theoretical framework tofurther understand the transfer mechanism between cognitivedissonance, overconfidence, and merger outcome. Using techniquesexploiting CEO competencies, self-esteem/narcissism theories, and'revealed beliefs' argument would allow cognitive dissonance andoverconfidence to be quantified. Consequently, this would allow forthe establishment of a more advanced theoretical modellingframework in which to understand the role of cognitive dissonance,its interaction with overconfidence, and the effects on mergeroutcome. This is imperative in today's economic climate given that36% of CEOs still have a high M&A appetite and a large proportionof career advancement, salary, and bonus is linked to successfulcompletion of M&As.