CEO overconfidence and the informativeness of bank stock prices

Anh-Tuan Le, Anh-Tuan Doan and Kun-Li Lin

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: This study examines the effect of the overconfidence of chief executive officers (CEOs) on the informativeness of banks' stock prices. Using an option-based overconfidence measure, we demonstrate that banks with overconfident CEOs have less informative stock prices. This finding is robust to alternative measures of overconfident CEOs and to addressing endogeneity with propensity score matching, an instrumental variable approach, and difference-in-differences analysis. Furthermore, banking and financial market crises strengthen the negative effect of overconfident CEOs on stock price informativeness, especially in larger banks. Finally, better corporate governance or higher capital mitigates the negative impact of overconfident CEOs on banks' stock price informativeness. Policymakers should consider implementing supervisory strategies that require banks to provide accurate information and encourage private-sector monitoring of banks.

Keywords: CEO overconfidence; Stock price informativeness; Financial crisis; CEO turnover (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001625

DOI: 10.1016/j.irfa.2024.103230

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