What is CEO overconfidence? Evidence from executive assessments

Steven N. Kaplan, Morten Sørensen and Anastasia Zakolyukina

Journal of Financial Economics, 2022, vol. 145, issue 2, 409-425

Abstract: We use detailed assessments of CEO personalities to explore the nature of CEO overconfidence as it is commonly measured. Longholder, the option-based measure of CEO overconfidence introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures, is significantly related to several specific characteristics that are associated with overconfident individuals as well as individuals with lower ability. Similar relations hold for overconfidence measures based on CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. After controlling for ability and other characteristics, Longholder CEOs’ investments remain significantly more sensitive to cash flows. These results suggest that overconfidence, as measured by Longholder, is correlated with lower ability but still reflects empirically distinct aspects of overconfidence.

Keywords: CEO characteristics; CEO overconfidence; Corporate investment (search for similar items in EconPapers)
JEL-codes: D91 G31 G34 G40 G41 M50 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X21004293
Full text for ScienceDirect subscribers only

Related works:
Working Paper: What Is CEO Overconfidence? Evidence from Executive Assessments (2020)
Working Paper: What Is CEO Overconfidence? Evidence from Executive Assessments (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:2:p:409-425

DOI: 10.1016/j.jfineco.2021.09.023

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().