The paper investigates whether overconfident CEOs delegate less when making major corporate decisions, such as mergers and acquisitions. The question matters because many companies operate in multiple countries and sectors, so complex deals often require input from different specialists. Jared Smith, a coauthor and finance professor at North Carolina State University's Poole College of Management, says delegation can bring more voices to the table and allow CEOs to concentrate on broader strategic issues.
The researchers analysed 3,690 M&A transactions by publicly traded companies from 2000 to 2019. They limited the sample to deals worth at least $50 million and representing at least 1% of the acquirer's equity; the sample covered 1,634 CEOs. CEO confidence was measured using an established technique based on executives' exercise of stock options. Delegation was identified by reviewing press releases and news articles: if anyone outside the C-suite was named, that counted as delegation. The team also checked "background of the merger" documents filed with the Securities and Exchange Commission to confirm who attended meetings during the M&A process.
The main findings are clear:
- 41% of the CEOs in the dataset were judged overconfident.
- Overconfident CEOs were 10–15% less likely than average to delegate responsibility during M&As.
- The tendency not to delegate was stronger for deals in an industry new to the acquirer and for firms with more business segments.
Smith says the result about business segments was especially surprising because theory predicts that CEOs of more complex organisations should benefit more from outside expertise. He adds that while confidence is important for leadership, excessive confidence may reduce use of team expertise and could harm the ability to handle complex situations. The paper appears in the Journal of Management Studies; additional coauthors are from Indiana University and Clemson University. Source: North Carolina State University.
Difficult words
- overconfident — Having too much belief in one's own ability
- delegate — Give responsibility or tasks to others
- merger — Combination of two companies into onemergers
- acquisition — Purchase of one company by another companyacquisitions
- acquirer — Company that buys or takes over anotheracquirer's
- equity — Share of ownership in a company
- segment — A distinct part of a company's businesssegments
- press release — Official public statement from a companypress releases
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Discussion questions
- Why might overconfident CEOs be less likely to delegate during complex M&A deals?
- What risks and benefits can come from involving people outside the C-suite in major corporate decisions?
- How could a company encourage use of team expertise while keeping confident leadership?
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