UC Riverside

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 returns to acquisitions. Contributions to the CEO overconfidence and acquisitions literatures are discussed. Researchers in the area of entrepreneurship have explored how overconfidence influences the decision-making of entrepreneurs and the outcome of ventures. However, the overconfidence of venture capitalists, who are critical participants in entrepreneurship, is rarely discussed. To fill in the gap, in the third study, I explore how overconfidence influences venture capitalists' investment decisions and their nurturing of portfolio companies. I argue and find that after experiencing success, venture capitalists tend to attribute the credits to their own abilities and foster overconfidence, which leads to inferior investment decisions and poor investment performances. To further identify the mechanisms behind these dynamics, I explore whether venture capitalists will change their investment strategies after experiencing success, and I find that after experiencing extraordinarily higher IPO performances in its previous funds, venture capitalists were more likely to invest in private companies beyond their own expertise in their current funds. Furthermore, I find that the level of overconfidence is stronger if a venture capitalist is just a free rider but succeeds and is weaker if the venture capitalist has more investment experience. In the private company level analysis, I explore how the percentage of overconfident venture capitalists within lead VCs in a syndicate influences the fate of the private company. I defined a private company as a missed target if the private company could have the opportunities of being acquired, but it forwent the acquisition, and failed to go IPO, either. I find that a private company backed by a syndicate with a higher percentage of overconfident lead venture capitalists is more likely to be a missed target. This paper contributes to the area of entrepreneurship by extending the study of overconfidence from entrepreneurs to venture capitalists.