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1 – 10 of over 8000Diksha Saini and Balwinder Singh
Based on Upper Echelon Theory, the present study is an endeavor to assess the relationship between Chief Executive Officer (CEO) confidence and the performance of a firm. This…
Abstract
Purpose
Based on Upper Echelon Theory, the present study is an endeavor to assess the relationship between Chief Executive Officer (CEO) confidence and the performance of a firm. This study also investigates the moderating role of board independence in this context.
Design/methodology/approach
This work is based on a sample of 500 S&P-indexed Indian firms listed on the Bombay Stock Exchange over a time span of 12 years, i.e. from 2010 to 2021. Panel regression models are employed on a final sample of 3,780 firm-year observations to examine the aforesaid relationship.
Findings
The empirical findings of the study support the positive association between CEO confidence and firm performance as highly confident (overconfident) CEOs tend to make quick and intuitive decisions, alleviate the firm's underinvestment problem, and have a higher propensity to boost the overall firm performance. Moreover, the results reveal that the presence of independent directors (IDs) negatively moderates this relationship and reduces the positive impacts of CEO overconfidence as IDs lack the required knowledge of the business. IDs themselves tend to assume the imperative position and reject the CEO's proposals, thereby negatively impacting the firm performance in the long run.
Originality/value
The current study provides significant novel insights into the finance and strategic management literature that overconfidence bias among CEOs can be a desirable managerial trait for shareholders to boost the long-term performance of the firm. The study also extends to the corporate governance literature by providing empirical evidence of IDs reducing the potential beneficial effects of CEO overconfidence and that subsequently decreases the firm performance.
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Kenneth Yung, Diane DeQing Li and Yi Jian
The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.
Abstract
Purpose
The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.
Design/methodology/approach
In this study, the authors expand the number of proxies and measure managerial horizon by CEO age, CEO tenure, cash compensation relative to total compensation, and the amount of vested equity-based compensation to total compensation. To avoid potential measurement error, the authors compute the average ranking score of the four individual measures to determine the overall MDH of a CEO. Cross-sectional time series regressions are then performed on the effects of CEO MDH on REIT policies and performance. The authors also examine if the effect of myopic MDH can be mitigated by good corporate governance. For robustness purpose, the authors also compare the effects of age-related MDH and compensation-related MDH.
Findings
The results show that REITs managed by CEOs with short MDHs have lower levels of asset growth and a lower standard deviation of return on assets. These REITs also have lower debt levels, lower dividend payouts, and hold more cash. The results suggest that short-horizon CEOs have incentives to lower investment risk, default risk, and liquidity risk at the firm level in order to protect personal benefits. CEOs with a short horizon also have a negative impact on REIT performance. The results also show that CEO compensation-related horizon problems are mitigated by corporate governance, but CEO age-related horizon problems are significant and persistent. The results suggest that age-related behavioral biases of the CEO are important determinants of corporate decisions.
Practical implications
The results of this study suggest that the managerial behavioral biases should be considered in understanding firm behavior.
Originality/value
This is the first study that examines the effects of MDH on REIT behavior and performance. The unique regulatory environment of REITs makes them less susceptible to agency problems of free cash flow and thus provides a clearer picture of the effect of MDH. Prior studies focus on the effect of managerial horizon on firm investment activity, this study expands the scope to examine the effects on investment and financial policies. In addition, this study adds to the literature by showing that the effect of age-related horizon problems may not be mitigated by good corporate governance.
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Asma Bouzouitina, Mouakhar Khaireddine and Anis Jarboui
This paper aims to examine the effect of two CEO characteristics, namely, narcissism and overconfidence on corporate social responsibility (CSR) and the moderating effect of…
Abstract
Purpose
This paper aims to examine the effect of two CEO characteristics, namely, narcissism and overconfidence on corporate social responsibility (CSR) and the moderating effect of corporate governance (CG) mechanisms in the UK.
Design/methodology/approach
Using a sample of 2,360 UK firms listed on the FTSE 400 index for the years 2010–2017, the feasible generalized least squares method was applied to test the hypotheses developed.
Findings
The finding argues that CEO narcissism and overconfidence positively affect CSR. In addition, this paper found that CG effectiveness moderates the CEO’s CSR behavior.
Research limitations/implications
This research is subjected to two limitations. First, this study used different measures to proxy for CEO narcissism and overconfidence. However, other measures are not included owing to the difficulty to collect data regarding these measures. Second, this study includes only CSR performance instead of all other dimensions and categories of CSR. These limitations do not change the conclusions of this research, and they may provide guidance for further investigations.
Practical implications
Given that the CEOs psychological and behavioral features are critical in understanding CSR, shareholders and boards of directors should incorporate the behavioral aspects of narcissistic and overconfident CEOs in the design of CSR strategy.
Originality/value
This study emphasizes the importance of top executives’ psychological characteristics for CSR, which is a key application and complements the “upper echelons theory” and fills the research gap in the literature. This is one of the few studies that investigate the interaction between CG, CEO profile and CSR.
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Amel Kouaib, Asma Bouzouitina and Anis Jarboui
This paper explores how the tension between a firm's CEO overconfidence feature and externally observable hubris attribute may determine the level of corporate sustainability…
Abstract
Purpose
This paper explores how the tension between a firm's CEO overconfidence feature and externally observable hubris attribute may determine the level of corporate sustainability performance. This work also contemplates the impact of the moderator “corporate governance practices.”
Design/methodology/approach
This study uses a sample of 658 firm-year-observations using a sample of European real estate firms indexed on Stoxx Europe 600 Index from 2006 to 2019. To test the developed hypotheses, feasible generalized least square (FGLS) regression is applied.
Findings
Findings suggest that a good corporate governance score strengthens the positive effect of the psychological bias (CEO overconfidence) on corporate sustainability performance while it fails to attenuate the negative effect of the cognitive bias (CEO hubris).
Research limitations/implications
The research provides an overview of the impact of CEO personality traits on the corporate sustainability performance level in the European real estate sup-sector. As corporate governance can have a major impact to control these traits, the authors recommend European real estate companies to improve their corporate governance practices.
Originality/value
This study contributes to the existent literature this gap with two empirical novelties: (1) providing a novel insight into sustainability involvement using a sample of European real estate sup-sector and (2) investigating the moderating effect on the link between CEO psychological and cognitive biases and sustainability performance. This study provides empirical evidence that entrenchment problems arising from CEO hubris would not be mitigated by a good corporate governance practice.
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Zahra Souguir, Naima Lassoued and Houssam Bouzgarrou
This study aims to investigate the effect of overconfident chief executive officers (CEOs) on corporate tax avoidance and whether this relationship is affected by institutional…
Abstract
Purpose
This study aims to investigate the effect of overconfident chief executive officers (CEOs) on corporate tax avoidance and whether this relationship is affected by institutional and family ownership.
Design/methodology/approach
Using a sample of French-listed firms from 2009 to 2021, the authors find that firms managed by overconfident CEOs engage in more tax avoidance practice.
Findings
The authors further find that institutions and families are likely to discourage tax avoidance practices, paying close attention to their long-term horizons and reputational concerns. Overall, the authors' findings shed light on the monitoring role of institutional and family shareholders in restraining the effect of CEO behavioral bias on companies' tax avoidance.
Originality/value
To the authors' knowledge, no study has investigated the impact of managerial overconfidence on the tax behavior of French firms. The authors also extend the growing literature regarding managerial effects by providing new evidence that French firms held by concentrated institutional and family ownership curtail CEO overconfidence behavior toward corporate tax avoidance practices.
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David Peon, Anxo Calvo and Manel Antelo
This paper aims to examine the informational efficiency in retail credit markets to test whether behavioral biases (excessive optimism) by some participants in the banking…
Abstract
Purpose
This paper aims to examine the informational efficiency in retail credit markets to test whether behavioral biases (excessive optimism) by some participants in the banking industry might explain how credit booms are fueled by the banking sector.
Design/methodology/approach
This paper analyzes the conditions for the efficient market hypothesis approach to be extended to bank-based systems. A simple model of herding and limits of arbitrage that follows a three-step behavioral approach is presented (Shleifer, 2000). The model is based on duopolistic Cournot competition, where one bank is unbiased and the other is boundedly rational in terms of excessive optimism.
Findings
The paper shows why solely behavioral biases by participants in the banking industry explain how it feeds a credit bubble. According to the presented model, optimistic banks would lead the industry, while it would be rational for unbiased banks to herd under conditions that the authors derive. An important finding is the role of limits of arbitrage in the banking sector: there would be no incentives for rational banks to correct the misallocations of their biased competitors.
Practical implications
It might be a valid contribution to the current debate on macroprudential regulation. Should tests of rationality and correlated behavior provide evidence on the pervasiveness of behavioral biases in the banking industry suggested by our model, then banking regulation should account for it.
Originality/value
This paper introduces an alternative approach to analyze informational efficiency in the banking industry that, to the best of our knowledge, had not been raised so far. The model shows how behavioral biases might guide retail credit markets and why limits of arbitrage would be more pervasive in bank-based financial systems than in market-based ones.
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Deepak Kumar and Hardeep Singh Mundi
The chapter reviews existing research on merger and acquisition (M&A) activities and chief executive officers (CEOs) in organizations. The study provides insights into the…
Abstract
The chapter reviews existing research on merger and acquisition (M&A) activities and chief executive officers (CEOs) in organizations. The study provides insights into the existing literature and proposes avenues for future research on M&A activities and CEOs. The present study adopts bibliometric analysis on 319 articles identified from the literature. The articles selected for analysis are extracted from the Scopus database and are selected based on the focus of the papers on M&A activities and CEOs. Existing studies on M&A activities and CEOs demonstrate that CEOs affect M&A activities, CEOs affect the performance of M&A activities, and M&A activities also influence the role of CEOs in M&A activities. We identify and list scientific mapping in trending topics, scientific production, citation analysis, prominent authors, and their affiliations. The study is relevant to academicians, practitioners, and policymakers interested in corporate finance, especially in the areas overlapping CEO attributes and M&A activities.
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Mohamed Ali Azouzi and Anis Jarboui
This paper deals with the relationship existing between the emotional aspect and decision‐making processes. More specifically, it examines the links between emotional…
Abstract
Purpose
This paper deals with the relationship existing between the emotional aspect and decision‐making processes. More specifically, it examines the links between emotional intelligence, decision biases and effectiveness of the governance mechanisms. The primary purposes of this paper are to: consider emotional intelligence as new research ideas that make important contributions to society; offer suggestions for improving manuscripts submitted to Consortium for Research on Emotional Intelligence in Organizations; and discuss methods for enhancing the validity of inferences made from research.
Design/methodology/approach
The paper explains that the main cause of organization's problems is CEO emotional intelligence level. The authors use three models (linear regression and logistic binary regression) to examine this relation: every model treats the relationship between emotional intelligence and one of efficiency criteria of the board. Emotional intelligence has been measured according to Schutte et al.'s Shutte Self Report Emotional Intelligence Scale (SSREI), with a high internal validity level. The four cognitive biases have been measured by means of a questionnaire comprising several items and the selected sample was composed of some180 Tunisian executives (belonging to 60 firms).
Findings
The results revealed that the presence of a high emotional intelligence rate is not always positively correlated with the executives' suggestibility with respect to behavioural biases. They have also affirmed the existence of a complementarity relationship between emotional intelligence and the directors' board. Authors need to consider that emotion which minimizes CEO emotional biases and provides director's board effectiveness.
Research limitations/implications
This article has implications for the development of CEO emotional intelligence capacity. Also, some psychological aspects of a theoretical nature could not be wholly approached in a complete empirical way.
Practical implications
The paper pushes organizations to select managers based on their levels of emotional intelligence (apply tests of emotional intelligence in place psychometric tests). Also, it increases the validity of inferences made from research in the field.
Social implications
This paper incites governments to establish training programs aimed at the development of learning of emotional intelligence. Thus, it has important implications for enhancing the well‐being of individuals, organizations and society as a whole.
Originality/value
Actually, for the sake improving the explanatory power of a legal‐financial approach of governance, the behavioural dimension has been integrated for a more thorough analysis of the directors' board role. The authors' goal consists in highlighting the role played by emotional intelligence as a skill or tool available for the manager or controller to minimize the behavioural biases (bias of loss aversion, optimism, over‐confidence and lack of cognitive flexibility), and achieves an effective control.
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Hardeep Singh Mundi, Parmjit Kaur and R.L.N. Murty
The purpose of this study is to understand the impact of the overconfidence of finance managers on the capital structure decisions of family-run businesses in the Indian scenario…
Abstract
Purpose
The purpose of this study is to understand the impact of the overconfidence of finance managers on the capital structure decisions of family-run businesses in the Indian scenario. Furthermore, this study aims to demonstrate that measurable managerial characteristics explain the capital structure decisions of managers.
Design/methodology/approach
The qualitative approach to research, which aims at understanding a given phenomenon among the experts, is followed. Semi-structured interviews are conducted with 21 overconfident finance managers of family-owned businesses. Content analysis is used to analyse the collected data regarding capital structure decisions into several themes to fully explore the issue in the Indian scenario.
Findings
In terms of preference for cash or debt, most of the responding overconfident finance managers of family-run businesses agreed that cash is the preferred source of financing over debt financing. This is due to the biased behaviour of overconfident managers, who consider lower availability of debt as a reason to prefer cash over debt financing. The present study reports that overconfident finance managers prefer short- to long-term debt financing. These managers raise certain practical issues, such as stringent debt terms and inflexible repayment schedules, that arise in relation to the long-term debt market. The study also finds that overconfident finance managers do not fully use tax savings. Respondents reported a lack of access to the debt market and a lack of expertise in capital structure decisions as factors in these capital structure decisions. In addition, the study explores various factors, such as the role of government, the Central Bank of India and industry practices, in relation to capital structure decisions. The study finds that the capital structure decisions of these overconfident finance managers are suboptimal because of the presence of overconfidence bias.
Research limitations/implications
This study gathers information from respondents who are finance managers, not top-level managers, of family businesses; the decision not to interview the higher-ranking managers is a potential limitation of the present study. Another limitation is the small number of respondents in a specific firm size. Because of these factors, the generalisability of the findings of this study will obviously be restricted.
Practical implications
The present study has several practical implications. The first is the recognition of overconfidence bias as it affects the decision-making of finance managers. Executives, especially finance executives, will benefit from the recognition of overconfidence bias and will understand how the presence of such bias impacts corporate decision-making. Managers will understand that bias leads to faulty decision-making. The study will provide indirect feedback to policymakers and regulators in terms of understanding the role of macroeconomic variables in economic decisions. The qualitative approach followed in the present study may enhance the understanding of capital structure decisions from a psychological perspective. The majority of studies in the review of literature adopt quantitative approaches; so the qualitative approach adopted here represents a methodological innovation, and it may provide a deeper understanding of the matter.
Originality/value
The existing literature includes quantitative research aimed at understanding the impact of CEO overconfidence on various corporate policies such as capital budgeting, mergers and acquisitions, dividend policy and capital structure decisions. Quantitative research into the presence of overconfidence bias among executives and its impact on corporate policies returns mixed results. To fulfil the need for studies of overconfidence bias among executives with practical implications, this study explores the presence of overconfidence bias among finance managers in family-run businesses and investigates the impact of overconfidence on capital structure decisions.
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Wayne Borchardt, Takhaui Kamzabek and Dan Lovallo
A decade after Powell et al.’s (2011) seminal article on behavioral strategy, which called for models to solve real-world problems, the authors revisit the field to ask whether…
Abstract
Purpose
A decade after Powell et al.’s (2011) seminal article on behavioral strategy, which called for models to solve real-world problems, the authors revisit the field to ask whether behavioral strategy is coming of age. The purpose of this paper is to explain how behavioral strategy can and has been used in real-world settings.
Design/methodology/approach
This study presents a conceptual review with case study examples of the impact of behavioral strategy on real-world problems.
Findings
This study illustrates several examples where behavioral strategy debiasing has been effective. Although no causal claims can be made, with the stark contrast between the negative impact of biased strategies and the positive results emerging from debiasing techniques, this study argues that there is evidence of the benefits of a behavioral strategy mindset, and that this should be the mindset of a responsible strategic leader.
Practical implications
This study presents a demonstration of analytical, debate and organizational debiasing techniques and how they are being used in real-world settings, specifically military intelligence, Mergers and acquisitions deal-making, resource allocation and capital projects.
Social implications
Behavioral strategy has broad application in private and public sectors. It has proven practical value in various settings, for example, the application of reference class forecasting in large infrastructure projects.
Originality/value
A conceptual review of behavioral strategy in the wild.
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