Determinants of corporate financial distress: A CEO overconfidence perspective

Chao-Rung Ho

Applied Economics, 2025, vol. 57, issue 42, 6699-6713

Abstract: This study uses data from the United States from 1980 to 1994 to explore the relationship between CEO overconfidence and corporate financial distress during the “CEO Overconfidence Paradigm Era.” By using CEOs’ private portfolios and press coverage as proxies for overconfidence, this study examines whether CEO overconfidence contributes to corporate financial distress. The analysis indicates that CEOs characterized by optimism tend to make biased investment decisions, ultimately leading to decreased shareholder wealth. Fascinatingly, the results reveal a counterintuitive finding: CEOs publicly mentioned in the Wall Street Journal for their overconfidence exhibit a lower risk of financial distress for their companies.

Date: 2025
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DOI: 10.1080/00036846.2024.2386850

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