Search results

1 – 10 of 680
To view the access options for this content please click here
Article
Publication date: 17 June 2021

Yang Ji, Erhua Zhou and Wenbo Guo

Anchored in the role of a social arbiter, the purpose of this study is to examine whether and how media coverage has an impact on CEO overconfidence and further explore…

Abstract

Purpose

Anchored in the role of a social arbiter, the purpose of this study is to examine whether and how media coverage has an impact on CEO overconfidence and further explore how media ownership and Confucianism affect the relationship in the Chinese context.

Design/methodology/approach

Using a sample of 1,492 Chinese listed companies from 2010 to 2015, the study adopts random effects models to empirically analyze the effect of media coverage on CEO overconfidence and the roles of media ownership and Confucianism.

Findings

The paper finds that media coverage is significantly and positively associated with CEO overconfidence, and the positive relationship between media coverage and CEO overconfidence becomes stronger for state-controlled media. What is more, the influence of media coverage on CEO overconfidence is attenuated for those firms located in stronger Confucianism atmosphere. A further analysis reveals that different tenors of media coverage yield asymmetric effects.

Originality/value

The paper provides a new and solid support for the argument that media praise stimulates CEO overconfidence and increases the knowledge about under what conditions CEO overconfidence varies, broadly speaking which fosters the development of upper echelons theory (UET). Meanwhile, the results extend the literature on media effect and information processing. The findings are also beneficial to improve corporate decisions and government regulation on Chinese media systems.

Details

Cross Cultural & Strategic Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2059-5794

Keywords

To view the access options for this content please click here
Article
Publication date: 15 February 2021

Zulfiqar Ali and Muhammad Zubair Tauni

The purpose of this paper is to determine how CEO overconfidence influences firm’s future risk in a sample of Chinese listed firms. It further examines the moderating…

Abstract

Purpose

The purpose of this paper is to determine how CEO overconfidence influences firm’s future risk in a sample of Chinese listed firms. It further examines the moderating effect of institutional investors on the association between CEO overconfidence and future firm risk.

Design/methodology/approach

The initial sample consists of Chinese A-share issuing firms listed on Shanghai and Shenzhen Stock Exchanges during the period starting from 2000 to 2017. This study classifies a CEO as overconfident if the forecasted profits of the firm are greater than the actual profits for majority of the time during the tenure of the CEO. Ordinary least squares regression is used as the primary estimation method for generating the results, however, firm fixed effects and two-stage least squares regressions have also been used for verifying the robustness of the results.

Findings

The results demonstrate that CEO overconfidence leads to an escalation in firm’s risk level over the subsequent years. However, the intensity of this positive association is weaker in state-owned firms. Analysis of the moderating effect of institutional investors reveals that only active institutional investors, specifically mutual funds and foreign institutional investors, play their governance role in reducing the effect of CEO overconfidence on firm’s risk level. Furthermore, the moderating effect of active institutional investors is weaker in state-owned firms.

Research limitations/implications

The empirical evidence obtained by this study suggests that CEOs should exercise extreme diligence in decision-making. They must analyze a situation based on realistic facts and figures, rather than having misperception about their excessive abilities in controlling the outcomes of a situation. The findings also imply that regulators and policymakers should formulate strategies for motivating mutual funds and foreign investors to increase their shareholding in Chinese firms.

Originality/value

To the best of the authors’ knowledge, this is the first study that examines the impact of CEO overconfidence on future firm risk, not the current firm risk. Besides, literature regarding the role of external governance mechanisms in the context of behavioral biases is extremely scant. This study contributes to the literature by analyzing how the association between CEO overconfidence and firm’s future risk is influenced by the institutional investors’ ownership.

Details

Chinese Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-614X

Keywords

To view the access options for this content please click here
Article
Publication date: 8 September 2020

Tom Aabo, Nicholai Theodor Hvistendahl and Jacob Kring

The purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.

Abstract

Purpose

The purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.

Design/methodology/approach

This empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.

Findings

The authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.

Research limitations/implications

The findings are based on S&P 1500 non-financial firms in the period 2007–2016.

Practical implications

The findings have important implications in terms of CEO selection and compensation.

Originality/value

This study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.

Details

Managerial Finance, vol. 47 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article
Publication date: 15 November 2019

Quanxi Liang, Leng Ling, Jingjing Tang, Haijian Zeng and Mingming Zhuang

The purpose of this paper is to empirically analyze whether and how managerial overconfidence affects stock price crash risk.

Abstract

Purpose

The purpose of this paper is to empirically analyze whether and how managerial overconfidence affects stock price crash risk.

Design/methodology/approach

Based on a large sample of Chinese non-state-owned firms from 2000 to 2012, this study employs methods including multiple linear regression model, Heckman two-stage treatment effect procedure, firm fixed effects model and event study to clarify the causality relationship between managerial overconfidence and crash risk.

Findings

The authors find that firms with overconfident managers (chief executive officer or board chairs) are more likely to experience future stock price crashes than firms with non-overconfident managers. The effect of overconfidence on crash risk is more pronounced for firms with low transparency, suggesting that firm opacity facilitates overconfident managers’ bad news hoarding activities, which, in turn, increases stock price crash risk. The authors also show evidence that overconfident managers tend to disclose good news in a timely manner.

Originality/value

The authors add to the growing literature on stock price crash risk. Specifically, the authors find that the cognitive bias of board chair plays an important role in the bad news hoarding activities, thereby increasing the likelihood of stock price crash. This study also contributes to the literature that addresses the effects of managerial overconfidence on corporate finance issues.

Details

China Finance Review International, vol. 10 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

To view the access options for this content please click here
Article
Publication date: 30 June 2020

Runhui Lin, Fei Li and Adedigba Olawoyin

Overconfidence as an important psychological factor can also affect CEO’s cognitive preferences, while there are few studies about the impact of CEOoverconfidence on the…

Abstract

Purpose

Overconfidence as an important psychological factor can also affect CEO’s cognitive preferences, while there are few studies about the impact of CEOoverconfidence on the international expansion of companies. This paper aims to fill this gap and further discuss the moderating role of CEO’s overseas experience, CEO duality and ownership.

Design/methodology/approach

The authors focus on the Chinese context, collect 2008–2016 data from China's manufacturing industry as sample, use fixed effect model to analyse the effect of CEO overconfidence on international expansion strategy of Chinese firms.

Findings

The empirical results show that: CEO overconfidence positively promotes the degree of firm internationalization. CEO foreign experience positively affects the internationalization degree, but can restrain overconfidence thus negatively regulate this impact relationship. When duality is present, both CEO power and managerial discretion are pronounced and they exhibit a stronger effect. Firm’s equity nature will affect the relationship between CEOs' overconfidence and the degree of internationalization. Compared with private enterprises, CEOs in state-owned enterprises have limited power, therefore, this influence relationship is weaker.

Originality/value

This study has emphasized the importance of top executives' psychological characteristics on firm internationalization, which is key application and complement of upper echelons theory and fills the research gap in the literature. In this paper, the authors found the advantages of overconfidence for firms, which helps to understand the complex meaning of overconfidence. The results of moderating effect further explore the application of overconfidence in different context, which has some implications for management practice.

Details

Nankai Business Review International, vol. 11 no. 4
Type: Research Article
ISSN: 2040-8749

Keywords

To view the access options for this content please click here
Article
Publication date: 8 May 2017

Kwanglim Seo, Ellen Eun Kyoo Kim and Amit Sharma

This paper aims to find alternative explanations for the use of long-term debt in the US restaurant industry from a behavioral perspective. The three-fold purpose of the…

Abstract

Purpose

This paper aims to find alternative explanations for the use of long-term debt in the US restaurant industry from a behavioral perspective. The three-fold purpose of the present study is to examine the impact of CEO overconfidence on the use of long-term debt; explore how CEO overconfidence moderates the relationship between growth opportunities and long-term debt; and analyze the moderating role of CEO overconfidence based on cash flow levels in the context of the restaurant industry.

Design/methodology/approach

Using a sample of publicly traded US restaurant firms between 1992 and 2015, this study used generalized methods of moments with instrumental variable technique to analyze the panel data.

Findings

The findings of this study highlight the importance of considering behavioral traits of CEOs, such as overconfidence to better understand the US restaurant firms’ financing behaviors. This study found that overconfident CEOs tend to use more long-term debt when firms have greater growth opportunities and low cash flow.

Practical implications

Given that psychological and behavioral features of CEOs are critical in understanding the variations in corporate financing decisions and capital structure, shareholders and boards of directors of growth-seeking restaurant firms should incorporate the behavioral aspects of overconfident CEOs in the design of long-term debt contracts to mitigate liquidation risk while developing compensation practices that encourage overconfident CEOs to finance growth.

Originality/value

Despite its heavy reliance on long-term debt in the US hospitality industry, prior studies provided mixed findings for the determinants of long-term debt. This study makes a contribution to the literature by offering alternative approaches to examining long-term debt decisions among US restaurant firms.

Details

International Journal of Contemporary Hospitality Management, vol. 29 no. 5
Type: Research Article
ISSN: 0959-6119

Keywords

Content available
Article
Publication date: 21 August 2019

Blake Rayfield and Omer Unsal

The authors study the relationship between CEO overconfidence and litigation risk by examining employee-level lawsuit data. The purpose of this paper is to better…

Abstract

Purpose

The authors study the relationship between CEO overconfidence and litigation risk by examining employee-level lawsuit data. The purpose of this paper is to better understand the executive characteristics that potentially affect the likelihood of employee litigations.

Design/methodology/approach

The authors employ a unique data set of employee lawsuits from the National Labor Relations Board – “Disposition of Unfair Labor Practice Charges” – which includes complaints, litigations and decisions. The data spans the years 2000–2014. The authors employ the option-based CEO overconfidence metric of Malmendier et al. (2011) as the primary explanatory variable.

Findings

The authors find that overconfident CEOs are less likely to be subjected to labor-related litigations. The authors document that firms with overconfident CEOs have fewer lawsuits opened by both labor unions and individuals. The authors then investigate the effect of employee litigations on firm performance to understand why overconfident CEOs are less prominent among lawsuits. The authors show that litigations lower corporate investment and value of capital expenditures for responsible firms, which may limit overconfident CEOs’ ability to invest. Therefore, the results may reveal the fact that overconfident CEOs may prefer to align with the interest of their employees to avoid reduced investment opportunities.

Originality/value

The paper makes three main contributions. First, it provides the first large-sample evidence on CEO overconfidence and labor relations. The authors employ data on firm-level labor litigation that contains both the case reason and case outcome. Second, this paper adds to the growing literature of CEO overconfidence and governance practices in the workplace. Finally, the study highlights the importance of employee treatment and explores the impact of labor lawsuits on firm value.

Details

Review of Behavioral Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1940-5979

Keywords

To view the access options for this content please click here
Article
Publication date: 1 July 2011

Jiang Wei, Xiao Min and You Jiaxing

The purpose of this paper is to empirically analyze the effects of managerial overconfidence on debt maturity structure decisions in terms of liquidity risk and asset…

Abstract

Purpose

The purpose of this paper is to empirically analyze the effects of managerial overconfidence on debt maturity structure decisions in terms of liquidity risk and asset match in Chinese listed companies.

Design/methodology/approach

Combining data from CSMAR with some default data collected by hand, this paper selects age, tenure, education, education background and whether the board chair and CEO positions are consolidated in Chinese listed companies as proxies of managerial overconfidence. Thus, the authors acquired needed and credible empirical data.

Findings

It was found that, the younger the CEO, the shorter the tenure, the lower the education, having economics or management education and being chairman concurrently, CEOs have stronger managerial overconfidence. Thus, corporate debt maturity structure is more weakly correlated with debt ratio and asset structure.

Research limitations/implications

The findings in this study suggest that managerial irrationality, especially overconfidence, does have an effect on the financing decisions of firms.

Originality/value

This is the first paper to analyze the effects of managerial overconfidence on debt maturity structure decisions in terms of liquidity risk and asset match. The findings inspire firm risk management policies from managerial overconfidence.

Details

China Finance Review International, vol. 1 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

To view the access options for this content please click here
Article
Publication date: 1 February 2016

Irene Wei Kiong Ting, Hooi Hooi Lean, Qian Long Kweh and Noor Azlinna Azizan

The purpose of this paper is to investigate the impact of managerial overconfidence on corporate financing decision and the moderating effect of government ownership on…

Abstract

Purpose

The purpose of this paper is to investigate the impact of managerial overconfidence on corporate financing decision and the moderating effect of government ownership on the relationship between managerial overconfidence and corporate financing decision.

Design/methodology/approach

Pooled OLS, fixed effect models (FEM), and Tobit regressions are employed to examine the relationship between managerial overconfidence, government ownership and corporate financing decision of publicly listed companies in Malaysia for the period of 2002-2011.

Findings

The authors conclude that: first, CEO overconfidence is significantly and negatively related to corporate financing decision; second, a higher degree of managerial overconfidence would result in lower leverage in GLCs, whereas the effect does not significantly exist in NGLCs; third, a larger ownership of government in a firm will reduce the negative effect of managerial overconfidence on corporate financing decision; fourth, the moderating effect of government ownership on the association between managerial overconfidence and corporate financing decision in GLCs is more effective than NGLCs; and fifth, government intervention plays its role as moderating effect on the relationship between managerial overconfidence and corporate financing decision in firms with lower ownership concentration but not in firms with high ownership concentration (more or equal than 50 percent).

Practical implications

The finding implies that the moderating effect of government ownership on the association between managerial overconfidence and corporate financing decision in GLCs is more effective than NGLCs.

Originality/value

The authors make the first attempt to test the moderating effect of government ownership on the relationship between ownership concentration and corporate financing decision.

Details

International Journal of Managerial Finance, vol. 12 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

To view the access options for this content please click here
Book part
Publication date: 9 December 2013

Hyung-Suk Choi, Stephen P. Ferris, Narayanan Jayaraman and Sanjiv Sabherwal

To determine what role overconfidence plays in the forced removal of CEOs internationally.

Abstract

Purpose

To determine what role overconfidence plays in the forced removal of CEOs internationally.

Design/Methodology

The study makes use of the Fortune Global 500 list.

Findings

We find that overconfident CEOs face significantly greater hazards of forced turnovers than their non-overconfident peers. Regardless of important differences in culture, law, and corporate governance across countries, overconfidence has a separate and distinct effect on CEO turnover. Overconfident CEOs appear to be at greater risk of dismissal regardless of where in the world they are located. We also discover that overconfident CEOs are disproportionately succeeded by other overconfident CEOs, regardless of whether they are forcibly removed or voluntarily leave office. Finally, we determine that the dismissal of overconfident CEOs is associated with improved market performance, but only limited enhancement in accounting returns.

Originality/Value

This study is unique with its examination of overconfidence among global CEOs rather than being limited to U.S. chief executives. It also provides insight into how overconfidence is related to national cultures, legal systems and corporate governance mechanisms.

Details

Advances in Financial Economics
Type: Book
ISBN: 978-1-78350-120-5

Keywords

1 – 10 of 680