Cognitive Dissonance, Overconfidence, and Merger Outcome

Cognitive dissonance is the psychological stress experienced by an
individual who simultaneously holds two or more contradictory
beliefs and, as a result, feels pressure to produce consonant relations
among cognitions to reduce dissonance. The literature which
amalgamates cognitive dissonance within finance is in its preliminary
stages despite mergers and acquisitions being one of the most pivotal
decisions a company can make. Therefore, I propose coalescing
Festinger's cognitive dissonance theory with financial literature and
applying it to US and UK mergers via a theoretical framework to
further understand the transfer mechanism between cognitive
dissonance, overconfidence, and merger outcome. Using techniques
exploiting CEO competencies, self-esteem/narcissism theories, and
'revealed beliefs' argument would allow cognitive dissonance and
overconfidence to be quantified. Consequently, this would allow for
the establishment of a more advanced theoretical modelling
framework in which to understand the role of cognitive dissonance,
its interaction with overconfidence, and the effects on merger
outcome. This is imperative in today's economic climate given that
36% of CEOs still have a high M&A appetite and a large proportion
of career advancement, salary, and bonus is linked to successful
completion of M&As.