This study investigates whether overconfidence of board directors, gained via biased self-attribution in recent M&A deals, influences the quality of corporate acquisitions. We propose an experience-based measure of board overconfidence that complies with established theories in the fields of social psychology and group decision making and is related to the literature on CEO overconfidence and M&A transactions. The measure is found to correlate positively with optimistic insider trading of board directors before M&A deals and is thus a reliable proxy for board overconfidence. Based on a large set of public acquisitions carried out by large U.S. companies, we show that board overconfidence is negatively related to abnormal stock returns upon merger announcements and positively to the premiums paid in such transactions. The results are economically relevant and statistically robust and further suggest that the effect of board overconfidence is distinct from (and adds to) the documented influence of CEO overconfidence on the quality of corporate acquisitions.

Distinguishing between status spillovers and status ripples, we argue that sudden positive status shifts create status ripples when the social actors experiencing the status shifts are more constrained from exploiting their higher status than the social actors to whom they are affiliated. Specifically, we examine the status ripple paradox that the status effects experienced by the affiliated actors sometimes are as strong, or even stronger, as the direct status effects experienced by the ascending actors themselves. Focusing empirically on prestigious CEO awards from U.S. news magazines, we examine the consequences of positive status shifts for the awarded CEOs and the CEOs who are on the boards of directors of the awarded CEOs’ firms. We find evidence of status ripples in CEO compensation by showing that awarded CEOs have relatively greater immediate but smaller subsequent increases in compensation, which results in lower overall compensation effects for the awarded CEOs. Moreover, we provide empirical evidence of the theoretical mechanisms behind the status ripple paradox by showing that external constraints in the form of increased media and analyst attention and increased expectations affect the status ripple effect.

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Organizational decisions are often made by groups rather than individuals. Depending on the group composition, each member's characteristics—like gender and motivated beliefs—can influence the final group investment decision. To capture this, we design two types of investment situations in a randomized controlled laboratory experiment—one with fixed chances of success and one with performance-dependent chances of success. This novel design entails the perceived ability to “beat the odds” of the investment and thus models real-life investment situations more accurately than standard lottery choice. Our results demonstrate the benefits of mixed group composition in terms of both gender and overconfidence: Groups with all men and/or all overconfident group members consistently overinvest when a possibility to “beat the odds” is present, but not in standard situations. We explore several channels for our results and find that (i) individual probability perception, (ii) leader responsibility allocation and (iii) spillover effects from priming show significant effects.

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