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1 – 10 of 361Stefano Paleari and Silvio Vismara
The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when…
Abstract
Purpose
The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when pricing IPOs on the Italian Nuovo Mercato.
Design/methodology/approach
The paper investigates whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts’ ex‐ante expectations to actual ex‐post figures. Using a sample of pre‐IPO analysts’ reports, the paper performs a regression analysis using the forecast errors (FE) of post‐issue sales as dependent variable in order to find out the determinants of mis‐valuation.
Findings
It is found that the Nuovo Mercato has been essentially a “market for projects” in which young enterprises endowed with a few tangible assets sold their business plans to the market exploiting high‐growth opportunities. In the aftermarket, stock and operating performances are found to be declining, falling short of initial expectations. The extent of the actual post‐issue growth was lower than the ex‐ante estimations by financial analysts, whose valuations were systematically upwardly biased. Affiliated analysts are found not to be more over‐optimistic than the unaffiliated. FE appear to be primarily driven by the extent of forecasted growth, by market sentiment and (inversely) by the size of the firm.
Originality/value
From the perspective of investors, this study contributes to the understanding of the helpfulness and limits of the analysts’ forecasts in investment decisions and, more generally, of the determinants of over‐optimism. This study addresses the issue of over‐optimism and provides empirical evidence of it. This paper also contributes to the literature on the rise and fall of the new European stock markets.
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Decision-making biases play substantial roles in entrepreneurs' decisions and the fate of entrepreneurial enterprises, as well. Previous studies have assumed all entrepreneurs are…
Abstract
Purpose
Decision-making biases play substantial roles in entrepreneurs' decisions and the fate of entrepreneurial enterprises, as well. Previous studies have assumed all entrepreneurs are homogeneous in their proneness to biases, therefore inadvertently creating a crucial research gap by ignoring the role of business experience in the genesis of biases. Furthermore, there is a lack of research on women entrepreneurs' decision-making biases. Thus, this paper's main objective is to explore two influential biases of overconfidence and over-optimism in novice and habitual women entrepreneurs.
Design/methodology/approach
The data for this study were collected by conducting semi-structured interviews with 21 Iranian novice and habitual women entrepreneurs active in four high-tech sectors of biotech, nanotech, aerospace and advanced medicine. The gathered data were analyzed by thematic analysis.
Findings
According to the findings, while habitual entrepreneurs are prone to all three types of overconfidence (overestimation, overplacement and overprecision) and over-optimism, novice entrepreneurs do not show any signs of overplacement or overprecision.
Practical implications
There are certain valuable implications resulting from this study that could be of use for not only future researchers in the field of entrepreneurial decision-making and women entrepreneurship but also for women entrepreneurs running entrepreneurial enterprises, especially small businesses.
Originality/value
This paper offers certain novel contributions to the field of entrepreneurship by not only exploring biases in women entrepreneurs exclusively but also scrutinizing biases in novice (first-time) and habitual (experienced) entrepreneurs comparatively.
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Researchers suspect that the overvaluation of equity issuing acquirers is a major cause of their subsequent post-event underperformance. Definitive conclusions regarding this…
Abstract
Purpose
Researchers suspect that the overvaluation of equity issuing acquirers is a major cause of their subsequent post-event underperformance. Definitive conclusions regarding this overpricing hypothesis have not been possible since indicators of overpricing such as the book-to-market ratio and subsequent underperformance are open to alternative interpretations. The purpose of this paper is to corroborate or refute overvaluation as a driver of equity issuing acquirers’ subsequent underperformance.
Design/methodology/approach
The literature has linked overvaluation of acquirers to over-optimistic expectations. The authors use analysts’ earnings forecasts to reflect the market's expectations. Over-optimism is indicated by subsequent earnings disappointments. The authors examine the relation between acquirers’ choice of payment method and their tendency to report disappointing earnings. The authors also examine the effect of including a more direct measure of over-optimism in a model to explain the long-run post-event buy-and-hold-abnormal returns of acquirers.
Findings
The post-acquisition earnings of equity issuing acquirers disappoint more often than those of acquirers employing alternative financing methods. This relationship is confined to glamour acquirers. The ability of financing method to predict long-run post-acquisition performance is subsumed when direct measures of optimism are included in a model explaining long-run post-acquisition performance. This result is robust to controls for overpayment and other potential explanations of post-acquisition underperformance.
Research limitations/implications
Acquirers’ management exploit their information advantage to exchange overvalued equity for the assets of the target company in accordance with Loughran and Ritter's (2000) behavioural timing hypothesis.
Originality/value
The study provides new and unambiguous evidence that equity-issuing acquirers are optimistically priced at the time of acquisition.
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Amirhossein Hajbaba and Ray Donnelly
The primary purpose of this paper is to test the prediction that overpricing drives merger waves.
Abstract
Purpose
The primary purpose of this paper is to test the prediction that overpricing drives merger waves.
Design/methodology/approach
The authors supplement proxies of overpricing from the existing literature such as subsequent under‐performance, the form of consideration/financing and low Book‐to‐Market ratios with an approach based on analysts' earnings forecasts. The authors maintain that over‐pricing is associated with relatively optimistically biased forecasts and use a metric based on subsequent earnings disappointments to represent mispricing.
Findings
It is reported that acquirers in hot markets are overpriced relative to acquirers in cold markets on almost all measures of over‐pricing thus supporting the behavioural theory. However, having controlled for optimistically biased expectations the long‐run BHARs to acquisitions in hot markets exceed those of acquisitions made in cold markets. These results therefore support the neoclassical theory's contention that post‐acquisition returns in merger waves are better than the unobserved alternative without the acquisition. The authors infer that neither the neoclassical nor behavioural theory on its own can provide a complete description of merger waves.
Originality/value
The authors exploit earnings forecasts to establish evidence of overpricing in a manner that is novel to the M&A literature. It is found that financing/consideration is significant in explaining subsequent under‐performance only in hot markets. This result is unaffected by controls for mispricing. The authors infer that the use of equity financing is driven by both behavioural timing and also by a desire to share any shortfall due to the increased potential for overpayment in hot markets.
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PERU: Century bond demand could denote over-optimism
The purpose of this paper is to study merger momentum and its driving factors in China by sampling 376 listed bidders from 2008 to 2013.
Abstract
Purpose
The purpose of this paper is to study merger momentum and its driving factors in China by sampling 376 listed bidders from 2008 to 2013.
Design/methodology/approach
The empirical model captures the dependency of market reaction on recent merger and stock market states. The independent variables are designed from two dimensions, i.e. at the level of market-wide as an integral and bidder-specific as individuals. Furthermore, both the market and bidding firms contain merger momentum and market momentum, respectively.
Findings
The empirical results show that there is merger momentum in the market. Particularly, merger momentum is significant both in short run and long run for the mergers with cash payment, which supports the synergy effect. It also implicates the mergers with stock driven by investor sentiment. Besides, investors’ over-optimism is significant in the bull markets while managerial hubris is found in the bear markets.
Research limitations/implications
The driving factors for merger momentum in China are complex. Three impacts with different effects interact with one another. They are investor sentiment and managerial hubris with negative effects resulting in reversal abnormal return in the long run, and synergies with positive shocks resulting in no reverse at all. The limitation of the paper is insufficient analysis of the mergers financed by stocks, which will be the focus for future study.
Practical implications
The conclusions of the study help to intensify the understanding of the immature and unnormalized capital market in China. The empirical analyses give some inspiration and suggestions to three parties in the market, i.e. investors, bidding firms and regulators, respectively.
Originality/value
There are three contributions. The first one is to provide a novel model to identify how these different effects work on the merger momentum. The second one is the measurement of investor sentiment from different perspectives. The last but most important one is the new findings with novel explanations, which proves that the impacts on merger momentum are complex.
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Wayne Borchardt, Takhaui Kamzabek and Dan Lovallo
A decade after Powell et al.’s (2011) seminal article on behavioral strategy, which called for models to solve real-world problems, the authors revisit the field to ask whether…
Abstract
Purpose
A decade after Powell et al.’s (2011) seminal article on behavioral strategy, which called for models to solve real-world problems, the authors revisit the field to ask whether behavioral strategy is coming of age. The purpose of this paper is to explain how behavioral strategy can and has been used in real-world settings.
Design/methodology/approach
This study presents a conceptual review with case study examples of the impact of behavioral strategy on real-world problems.
Findings
This study illustrates several examples where behavioral strategy debiasing has been effective. Although no causal claims can be made, with the stark contrast between the negative impact of biased strategies and the positive results emerging from debiasing techniques, this study argues that there is evidence of the benefits of a behavioral strategy mindset, and that this should be the mindset of a responsible strategic leader.
Practical implications
This study presents a demonstration of analytical, debate and organizational debiasing techniques and how they are being used in real-world settings, specifically military intelligence, Mergers and acquisitions deal-making, resource allocation and capital projects.
Social implications
Behavioral strategy has broad application in private and public sectors. It has proven practical value in various settings, for example, the application of reference class forecasting in large infrastructure projects.
Originality/value
A conceptual review of behavioral strategy in the wild.
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J‐L.W. Mitchell van der Zahn, Inderpal Singh and Joshua Heniro
Excessive initial trading day returns (termed underpricing (UP)) and poor long‐run performance (LRP) are two well‐documented anomalies associated with initial public offerings…
Abstract
Purpose
Excessive initial trading day returns (termed underpricing (UP)) and poor long‐run performance (LRP) are two well‐documented anomalies associated with initial public offerings (IPOs).The primary objective of this study is to empirically test the association between the extent of intellectual capital (IC) disclosure in the prospectus of an unseasoned IPO and: UP and LRP.
Design/methodology/approach
Ex ante uncertainty surrounding IC – recognized as the pivotal resource underlying a firm's future value creation and sustainable competitive advantage in the “new economic” era – is likely to be high. Unseasoned IPOs world‐wide are increasing with many IPOs heavily IC‐reliant. Given ex ante uncertainty surrounding IC, there is an escalating need to understand how disclosure of information related to IC can reduce an IPO's cost of capital (i.e. UP) and provide an indication of LRP. The analysis is based on a sample of 228 Singapore IPOs listing during the period 1997‐2003. IC disclosure (ICDisc) in IPO prospectuses is measured using an 81‐item researcher constructed disclosure index.
Findings
Empirical findings indicate, contrary to expectations, a positive (negative) ICDisc‐UP (ICDisc‐LRP) association.
Practical implications
It is the opinion that regulators, scholars and practitioners alike need to pay attention to developing a responsible model for reporting IC information so as to prevent a potentially unhealthy speculative environment driven by over‐optimism.
Originality/value
The study is the first to simultaneously investigate the linkage between ICDisc and UP and: LRP.
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Research into information retrieval (IR) cannot yet answer the basic question of how we can design IR systems to help people search for information with optimal levels of…
Abstract
Research into information retrieval (IR) cannot yet answer the basic question of how we can design IR systems to help people search for information with optimal levels of effectiveness. In relation to human‐system interaction, we have failed to develop any valid and at the same time robust user models capable of driving practical system development. If we strip away assumptions and over‐optimism relating to the generalisability of what are essentially sporadic and fragmented research efforts, the great “darkness to light” ratio characterising our knowledge of human aspects of IR becomes apparent. From a more critical and pessimistic (but by no means less realistic) perspective, we are getting nowhere fast. A range of strategies is proposed to improve the situation by supporting relatively “horizontal” as well as “vertical” knowledge integration. These consist of: greater use of pluralistic research approaches; enhanced access to research data; more multidisciplinary and multi‐perspective integrative reviews and conceptual mappings; and establishing a greater critical mass of published research findings sufficient to support the generation of a less sparse and fragmented evidence‐based knowledge map. The potential of electronic publishing and data access for helping achieve these goals is discussed.
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The purpose of this paper is to analyze the 2008‐2009 financial crisis using a behavioral view, and suggest changes in government policy and company governance to deal with the…
Abstract
Purpose
The purpose of this paper is to analyze the 2008‐2009 financial crisis using a behavioral view, and suggest changes in government policy and company governance to deal with the key behavioral problems.
Design/methodology/approach
Behavioral elements of the crisis are identified and explained, intermediaries involved in the crisis are reviewed, and both financial institution strategies and public policies are presented to deal with each element.
Findings
The behavioral view of the financial market points out that over‐optimism, anchoring, hubris and herd behavior are human attributes, and that future crises involving excessive credit extension will occur because of such non‐rational behavior. Responses to these elements of the crisis focus on four points: overconfidence related to rising home prices; inability of the market to channel participant behavior in sustainable directions; inadequate financial institution management due to hubris and herd behavior; and inadequate regulation due to regulatory capture and information gaps.
Practical implications
Policymakers must see that no policy can eliminate future crises, so they should focus on designing responses to the behaviors of market participants. Raising levels of capital adequacy will help convince the market that the environment is safer, but ultimately new crises will occur anyway. Policy should aim to pre‐establish responses to those future asset price bubbles and market‐failure conditions. Practitioners must recognize the realities of overconfidence and herd behavior, to design better management that will constrain overextension of credit and excessive risk‐taking.
Originality/value
A behavioral view has not previously been applied systematically to explain the crisis and to develop responses to it.
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