CEO Overconfidence and Long-Term Performance Following R&D Increases

Sheng-Syan Chen, Keng-Yu Ho and Po-Hsin Ho

Financial Management, 2014, vol. 43, issue 2, 245-269

Abstract: type="main">

We examine the relation between Chief Executive Officer (CEO) overconfidence and significant increases in research and development (R&D) expenditures. Although prior studies reveal a significantly positive market reaction to increases in R&D expenditures in both the long and short run, we find that long-run stock performance is positive only for firms whose CEOs are not overconfident. Our findings, which may be attributable to overinvestment and the overestimation of future cash flows, imply that R&D resulting from overconfident behavior does not provide any value to firms.

Date: 2014
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