1. Motives and objectives Corporate antitakeover provisions (ATPs) affect the efficiency of the market of corporate control. The more ATPs are in place, the stronger the CEO power and the weaker the shareholder rights become. When firms obtain the protection of ATPs from acquired, then CEOs do not concern losing job and make decisions deviating stockholder interests. This agency problem can lead to negative abnormal announcement returns for merger activities; the empirical evidence has been shown by past studies. However, there are studies suggest that the negative ATPs-returns relation is caused by some factors that are just related to governance. The past studies neglect a potential and important factor: CEO overoptimism. An overly optimist CEO often over-invest and leads to decreases in firm values. Also, previous studies find that the relationship between bidders’ announcement returns and firm size is reverse, and large firms can easily prevent from acquirers. Thus, the possible reason that the literature finds an uncertain ATPs-bidder returns relation is the sample is not grouped by particular factors. This study will consider the interaction effects of ATPs, the degree of CEO optimism, and firm size on bidder returns. The purpose is to: 1) examine the relation between ATPs and CEO overoptimism and whether the relation is affected by firm size; 2) investigate whether ATPs and CEO overoptimism interactively affect bidders’ announcement returns; and 3) compare the impacts of agency problems versus CEO overoptimism on the ATPs-announcement returns relation. 2. Methodology The special feature in this study is that I will directly measure the degree of CEO optimism referring to the methods the recent papers mention, then examine whether the ATPs-bidder returns relation changes after considering CEO overoptimism. Using data on mergers and acquisitions in US as sample, this study plans to compute abnormal announcement returns of bidders using the traditional event study. Then, the study will employ the t-test and non-parametric test as well as regression analyses to test the hypotheses this study develops. 3. Expected contributions This study can fill the gap for literature of the relation between corporate external governance and firm performance via considering the potential effects of CEO overoptimism. This research can supplement the evidence about CEO psychology biases in behavioral finance, and give an insight into corporate governance by considering the impact of CEO overoptimism on investment decisions.
