The negative side of confident executive leaders is that their very confidence may lead to hubris, in which their confidence blinds them to information that is contrary to a decided course of action. For example, overconfident CEOs tend to charge ahead with mergers and acquisitions even though they are aware that most acquisitions destroy shareholder value. Research by Tate and Malmendier found that “overconfident CEOs are more likely to conduct mergers than rational CEOs at any point in time. Overconfident CEOs view their company as undervalued by outside investors who are less optimistic about the prospects of the firm.” Overconfident CEOs were most likely to make acquisitions when they could avoid selling
new stock to finance them, and they were more likely to do deals that diversified their firm’s lines of businesses.