Essays on CEO overconfidence, female directors and corporate policy

In Chapter 1, I investigate how CEO overconfidence and board gender diversity influence M&A outcomes using a dataset of 2,214 transactions from 2000 to 2023. CEO overconfidence significantly impacts M&A dynamics, driving positive short-term stock price reactions (CARs), particularly in the services sector, and increasing bid frequency due to aggressive decision-making. However, overconfidence often leads to diminished post-merger performance (ROA), reflecting overestimated synergies and underestimated challenges. It also drives larger deals in industries like Retail Trade, where bold strategies are valued. Female directors play a nuanced role, mitigating the negative effects of overconfidence on post-merger performance and curbing excessive deal sizes in sectors like Services and Retail Trade. While female directors do not reduce bid frequency, they foster deliberate and strategic acquisitions in industries like Construction. Their influence on short-term market reactions is limited, emphasizing the context-dependent nature of investor perceptions. These findings highlight the importance of governance mechanisms, particularly gender diversity, in balancing the risks and rewards of CEO overconfidence in M&A strategies. In Chapter 2, I examine how CEO overconfidence and board gender diversity influence earnings management outcomes using a comprehensive dataset spanning 2000 to 2019. CEO overconfidence significantly drives aggressive earnings management practices, as overconfident CEOs are more likely to misalign financial reporting with actual performance to reflect their optimistic projections. Additionally, overconfident CEOs reduce audit quality by diminishing the likelihood of engaging Big 4 auditors, potentially compromising financial oversight. Gender-diverse boards, however, play a crucial moderating role in mitigating these risks. Female directors effectively curb earnings aggressiveness, fostering more ethical and transparent financial reporting. They also counterbalance the negative impact of overconfidence on audit quality, promoting the engagement of high-quality auditors to enhance governance. These findings highlight the importance of gender diversity in mitigating the behavioral biases of overconfident CEOs, highlighting the critical role of female directors in safeguarding corporate governance and financial reporting integrity. This study offers valuable insights for policymakers and practitioners aiming to strengthen governance frameworks and promote sustainable corporate practices.