What drives merger decision making behavior? Don’t seek, don’t find, and don’t change your mind

Despite the constant and frequent merger activity across various industries in the U.S. and throughout the world, limited evidence of the success of corporate mergers has been documented. The vast body of academic research demonstrates that most mergers add no value or reduce shareholder value for the acquiring firm. Given the failure of so many mergers, the question of why mergers continue to occur in large numbers remains. Overconfidence and optimism have come to the forefront as the most common behavioral explanations for the continued prevalence of ill-advised mergers. This paper investigates a different type of behavioral bias that also may influence merger and acquisition decisions—confirmation bias. Using a unique experimental data set, we provide evidence in support of the existence of confirmation bias in merger decision making behavior, particularly with respect to the behavior of actual corporate executives.