Abstract

This quantitative study explores the impact of overconfidence bias, lying for strategic advantage, and co-operation (or non-cooperation) among 29 highly experienced private equity fund and investment managers. Using four structured experiments, M&A professionals were assigned buyer and seller roles and allowed to choose among investment opportunities. Within a game theory framework, the buyers and sellers bargained over the purchase price. The results of these experiments were explored using a linear regression format. The skill level of the participants was measured using a financial literacy test prior to the experiments and two overconfidence measures were constructed. Lying for strategic advantage was an embedded behavior, and co-operation versus non-cooperation was observed. Results suggest that more experienced buyers, along with more skilled buyers, were able to achieve a lower price paid and higher ROI. Lying for strategic advantage was not found to have an impact on the price paid by buyers. Cooperation was not found to have a statistically significant impact. However, results suggest that when lying and cooperation is employed by a buyer, they can achieve a lower price paid for an acquisition, thus a higher ROI. These findings contribute to our understanding of outcomes observed from private equity transactions.

Library of Congress Subject Headings

Behavioral assessment; Private equity

Date of Award

2022

School Affiliation

Graziadio Business School

Department/Program

Business

Degree Type

Dissertation

Degree Name

Doctorate

Faculty Advisor

David Smith

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