How can I change Angular Material button background color on hover state?

You can also use mat-flat-button instead of mat-button as the former doesn't have an overlay mechanic. You just need to override the background color in your component which is imho is a much cleaner mechanic than globally overriding dynamically created overlay components angular material creates.

Try adding the following to your css...

.mat-button-focus-overlay {
    background-color:transparent;
}

Or

.mat-menu-item:hover {
     background-color:transparent;
}

The button styles are encapsulated, so you have to use /deep/ selector to change internal styles.

Try this:

.link-btn /deep/ .mat-button-focus-overlay {
    background-color:transparent;
}

Plnkr

Update:

As of Angular v4.3.0 the /deep/ selector is deprecated and will be replaced by the ::ng-deep selector. You can find more info in the documentation: Angular Documentation

As of Angular 6, the use of /deep/ or ng-deep in the chosen solution is marked for deprecation. The recommended way is to use global styles as stated in the docs.

Some Angular Material components, specifically overlay-based ones like MatDialog, MatSnackbar, etc., do not exist as children of your component. Often they are injected elsewhere in the DOM. This is important to keep in mind, since even using high specificity and shadow-piercing selectors will not target elements that are not direct children of your component. Global styles are recommended for targeting such components.

In the specific case of button hover background, I had to use the following code in my styles.css (global stylesheet included via angular-cli or directly linked in index.html). Note that you might have to replace primary with accent or warn depending on the palette type (color="primary" or color="accent" or color="warn") used in the button.

.mat-button.mat-primary .mat-button-focus-overlay {
  background-color: transparent;
}

If you don't want every button to be affected, it's better to have a specific class like no-hover-effect as shown below.

.no-hover-effect.mat-button.mat-primary .mat-button-focus-overlay,
.no-hover-effect.mat-button.mat-accent .mat-button-focus-overlay,
.no-hover-effect.mat-button.mat-warn .mat-button-focus-overlay
{
  background-color: transparent;
}

For every material button that doesn't need hover-effect, you'd do

  <button mat-button color="primary" class="no-hover-effect">
    No Hover Button
  </button>