Management Overconfidence and Short Run Cumulative Abnormal Return from Mergers and Acquisitions of Listed Firms Eastern Africa Securities Markets

This paper study operating efficiency as a driver of the impact of mergers and acquisitions on stock market returns of listed firms in Eastern Africa Securities Markets. Operating efficiency is used as the proxy for management overconfidence. A sample of thirty (30) listed firms in Eastern Africa securities markets involved in mergers and acquisitions for a period of twenty (20) years between 1996 and 2015 was used. The study was guided by Hubris theory. Cumulative abnormal return was computed using event study approach. Using cross sectional regression analysis, the study finds a negative significant relationship between operating efficiency short run cumulative abnormal return. This adds to the existing body of literature that management overconfidence attribute influences management when pursuing mergers and acquisitions deals. Consequently, managers will trust that their own valuation of a target firm, end up overpaying for target firms thereby destroying shareholder wealth. The study recommends that when evaluating target firm synergies for acquisition purposes, corporate managers should not be overconfident about their valuation; rather they should seek comparison with market.