CEO overconfidence: A dual-detriment to investment-price sensitivity via market negligence and reduced informed trading

Heung-Jae Jeon

Journal of Contemporary Accounting and Economics, 2023, vol. 19, issue 3

Abstract: This study investigates the impact of the direct and indirect effects of CEO overconfidence on investment-price sensitivity (IPS). Using a large sample of U.S. S&P 1500 firms from 1993 to 2020, I find a significant negative relationship between CEO overconfidence and investment-price sensitivity. Furthermore, the findings demonstrate that the relationship is partially mediated by the level of informed trading. This implies that overconfident CEOs not only resist using external information (direct effect) but also unintentionally diminish their chances to learn from the market by reducing informed trading (indirect effect). This study contributes to the existing literature by highlighting the role of CEO characteristics in shaping the information environment and establishing a causal link between CEO personality traits and corporate decisions.

Keywords: CEO overconfidence; Investment-price sensitivity; Learning from prices; Informed trading (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:19:y:2023:i:3:s1815566923000280

DOI: 10.1016/j.jcae.2023.100378

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