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Article

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

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Article

Mehdi Safari Gerayli, Mohammadreza Abdoli, Hasan Valiyan and Ali Damavandi

The characteristic of managers’ personality is a key factor in their decision-making. One of the most important personality characteristic of managers is overconfidence

Abstract

Purpose

The characteristic of managers’ personality is a key factor in their decision-making. One of the most important personality characteristic of managers is overconfidence. Overconfident managers have false trust about their abilities and have a positive view of the firm’s future performance. Thus, the purpose of this study is to investigate the association between managerial overconfidence and internal control weaknesses (ICW) of the firms listed on the Tehran Stock Exchange (TSE).

Design/methodology/approach

Sample includes the 480 firm-year observations from companies listed on the TSE during the years 2013–2017, and the hypothesis is tested using multivariate regression model based on panel data analysis.

Findings

The authors found that managerial overconfidence increases the firms’ ICW. The findings are robust to alternative measure of managerial overconfidence, individual analysis of the research hypothesis for each year and endogeneity concern. Moreover, additional analysis reveals that the positive relationship between managerial overconfidence and ICW is less pronounced in larger firms.

Originality/value

To the best of the authors’ knowledge, this is the first study to analyze the association between managerial overconfidence and ICW in emerging capital markets and, therefore, can contribute to extend the current literature on managerial overconfidence and ICW in developing countries, especially Iran’s emerging capital market.

Details

Accounting Research Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1030-9616

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Article

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

Content available
Article

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

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Article

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

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Article

Mahdi Salehi, Mahmoud Lari DashtBayaz and Samaneh Mohammadi Moghadam

The purpose of this paper is to assess the relationship between some management features (management capability, management entrenchment, agency costs and overconfidence

Abstract

Purpose

The purpose of this paper is to assess the relationship between some management features (management capability, management entrenchment, agency costs and overconfidence) and the innovation of companies listed on the Tehran Stock Exchange.

Design/methodology/approach

The study carried out during 2009–2015. A total of 125 companies were selected from eight industries as the sample of study using the method of systematic elimination. A descriptive-correlational design was used in this study and panel data regression models were employed for developing the relationship between research variables.

Findings

The obtained results indicated that managerial ability could foster innovation, while managerial entrenchment could stifle innovation and agency costs and overconfidence have no effect on innovation.

Originality/value

The current study is almost the first project which focuses on the management characteristics and firm innovation in developing countries.

Details

International Journal of Productivity and Performance Management, vol. 67 no. 7
Type: Research Article
ISSN: 1741-0401

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Article

Bin Guo and Peng Ding

Previous studies employing the behavioral theory of the firm have not explicitly taken the roles of decision makers and corporate governance into consideration. The…

Abstract

Purpose

Previous studies employing the behavioral theory of the firm have not explicitly taken the roles of decision makers and corporate governance into consideration. The purpose of this paper is to fill in this gap by integrating CEO overconfidence and discretion into the performance feedback mechanism.

Design/methodology/approach

Financial data were collected from 1,730 Chinese listed companies in the period 2011–2015. Firm-level patent application data were collected for 1988–2015 to measure firm patent application rhythm. Hypothesis testing relied on the fixed effect panel data model.

Findings

There is a positive relationship between performance discrepancy and a firm’s patent application rhythm. CEO overconfidence will weaken this positive relationship. The negative moderating effect of CEO overconfidence will be less pronounced when CEO discretion is high.

Originality/value

To the best of the authors’ knowledge, this work is the first empirical study that investigates the roles of CEO overconfidence and discretion in shaping the performance feedback mechanism.

Details

Management Decision, vol. 58 no. 4
Type: Research Article
ISSN: 0025-1747

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Article

Maryam Seifzadeh, Mahdi Salehi, Bizhan Abedini and Mohammad Hossien Ranjbar

The present study attempts to assess the relationship between management characteristics (managerial entrenchment, CEO narcissism and overconfidence, managers' myopia…

Abstract

Purpose

The present study attempts to assess the relationship between management characteristics (managerial entrenchment, CEO narcissism and overconfidence, managers' myopia, real and accrual-based earnings management) and financial statement readability of listed firms on the Tehran Stock Exchange. In other words, this paper seeks to answer the question that “whether management characteristics have a favorable effect on financial statement readability or not.”

Design/methodology/approach

Multivariate regression model is used to meet the purpose of this study and research hypotheses are also examined using a sample of 1,050 listed observations on the Tehran Stock Exchange during 2012–2017 and by employing multiple regression patterns based on panel data technique and fixed effects model. Moreover, exploratory factor analysis of six variables (tenure, board independence, CEO duality, CEO ownership, board compensation and CEO change) is used for calculating managerial entrenchment and the FGO index is used for measuring readability.

Findings

The obtained results show that there is a negative and significant relationship between managerial entrenchment and accrual-based earnings management and a positive and significant relationship between real earnings management, managers' myopia, managers' narcissism and overconfidence and financial statement readability.

Originality/value

Since the present study is the first paper to investigate such a topic in the emerging markets, it provides useful information about intrinsic and acquisitive characteristics of management for accounting information users, analysts and legal institutions that contribute greatly to financial statement readability. Besides, the results of this study aid the development of science and knowledge in this field and fill the existing gap in the literature.

Details

EuroMed Journal of Business, vol. 16 no. 1
Type: Research Article
ISSN: 1450-2194

Keywords

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Article

Pi-Hsun Tseng, Xuan-Qi Su and Hsiu-Jung Tsai

The purpose of this paper is to study the effect of managerial education levels on the wealth effect at the time of investment announcements, by testing two competitive…

Abstract

Purpose

The purpose of this paper is to study the effect of managerial education levels on the wealth effect at the time of investment announcements, by testing two competitive hypotheses: the agency theory-based overinvestment hypothesis vs the Q-theory-based organizational legitimacy hypothesis.

Design/methodology/approach

The authors construct the sample by hand-collecting the announcement dates of capital investments from major newspapers published in Taiwan from 2006 to 2014. The authors then use the event study methodology to estimate cumulative abnormal returns at the time of investments announcements to measure the wealth effect. Finally, the authors examine the wealth effect for capital-investing firms with higher managerial education vs those with lower managerial education. The authors also conduct a cross-sectional regression to test the relation between the wealth effect of capital investment and managerial education.

Findings

The empirical results indicate that the wealth effect at the time of investment announcements is less favorable for firms with better-educated managers; this negative relation is mitigated for firms with higher institutional ownership and is aggravated for family-controlled firms; and the overall findings are supported by the agency theory-based overinvestment hypothesis, suggesting that higher managerial education lead to greater managerial optimism/overconfidence, which in turn increases the likelihood of overinvestment and implies a less favorable wealth effect associated with capital investment.

Originality/value

This study contributes to the literature by proposing a new, unexplored stock market’s reaction channel through which managerial education signals adverse information about potential overinvestment behavior, even though many studies suggests that managerial education serves as an indication of knowledge/capability and improves firm performance.

Details

Managerial Finance, vol. 43 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

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Article

Mahdi Salehi, Amirhosein Afzal Aghaei Naeini and Safoura Rouhi

The primary purpose is to investigate the relationship between narcissism and managers' overconfidence in listed companies' risk-taking.

Abstract

Purpose

The primary purpose is to investigate the relationship between narcissism and managers' overconfidence in listed companies' risk-taking.

Design/methodology/approach

In this study, two criteria of signature and reward are used to measure manager's narcissism; manager's overconfidence, using multiple regression models and finally to measure companies' risk-taking by using companies' monthly returns. Multiple regression is employed to test the model using a sample of 890 firm-year participation on the Tehran Stock Exchange from 2012 to 2017 with panel data and model with fixed effects.

Findings

The findings indicate that the CEO's narcissism and the board of directors positively and significantly affect corporate risk-taking. Also, managers' overconfidence has a positive and significant relationship with corporate risk-taking.

Originality/value

The results of this study identified other factors affecting companies' risk-taking. This study also contributed to the development of the literature on narcissism, overconfidence and corporate risk-taking.

Details

The TQM Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-2731

Keywords

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