Restraining overconfident CEOs through credit ratings
Khoo, Shee-Yee Vu, Huong Klusak, Patrycja
Khoo, Shee-Yee
Vu, Huong
Klusak, Patrycja
Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2025
Journal
European Financial Management
Book
Publication Volume
Publication Issue
Publication Begin page
Publication End page
Publication Number of pages
Collections
Abstract
Overconfident CEOs significantly reduce their acquisition activity when facing a higher risk of a credit rating downgrade, possibly because credit ratings impact their ability to access external financing. Investment-grade firms managed by overconfident CEOs that are placed on a negative rating outlook reduce their acquisitiveness by approximately 16 percentage points. Our findings offer a novel perspective on the role of credit rating agencies as an external control mechanism, constraining overconfident managers from pursuing value-destroying acquisitions. Our findings survive a battery of robustness checks, including endogeneity, controlling for internal control mechanisms and market reaction tests.
Research Projects
Organizational Units
Journal Issue
Keywords
Behavioural Theory of the Firm, CEO Overconfidence, Credit Ratings, Mergers and Acquisitions