CEO Overconfidence, Loan-Loss Provisions, and the Effect of Country Corruption: An International Investigation

Hansol Lee, Dongjoon Choi, Ho-Young Lee and Inkyung Yoon

Emerging Markets Finance and Trade, 2023, vol. 59, issue 6, 1835-1851

Abstract: This study examines the relationship between CEO overconfidence and bank recognition of loan-loss provisions (LLPs) and the effect of country corruption level on this relationship by analyzing cross-country data. We use a sample of 3,047 financial institutions in 53 different countries over 2013–2018. The results reveal that overconfident CEOs are more likely to recognize lower LLPs, suggesting that they overestimate (underestimate) favorable (unfavorable) outcomes of loan collection. Furthermore, we find that lower country-level corruption attenuates this relationship. We further show that overconfident CEOs reduce only the recognition of discretionary components of LLPs.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:6:p:1835-1851

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DOI: 10.1080/1540496X.2022.2153591

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