Managerial Overconfidence and Stock Price Crash Risk: Evidence from China

Binsheng Qian, Chenghao Qian and Yusen Tan

Emerging Markets Finance and Trade, 2025, vol. 61, issue 15, 4841-4856

Abstract: This study examines the relationship between managerial overconfidence and stock price crash risk in China from 2006–2023. Using excessive investment and optimistic disclosure tone proxies, we find that overconfident managers significantly increase crash risk through bad news hoarding. Strong internal governance mechanisms effectively mitigate this effect, while external governance appears less effective and may exacerbate risk through herding behavior. Earnings management and opaque disclosures serve as key transmission channels. The overconfidence-crash relationship weakens under financial constraints and environmental uncertainty, highlighting the conditional nature of overconfidence effects and emphasizing governance structures’ role in mitigating crash risk in emerging markets.

Date: 2025
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DOI: 10.1080/1540496X.2025.2527782

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