Better innovators or more innovators? Managerial overconfidence and corporate R&D

Marina Zavertiaeva, Félix López-Iturriaga () and Evgeniia V. Kuminova

Managerial and Decision Economics, 2018, vol. 39, issue 4, 447-461

Abstract: The aim of this paper is to study the influence of chief executive officers' overconfidence on corporate research and development (R&D). We analyze a sample of 766 firms from the United Kingdom, France, Germany, Switzerland, Italy, Spain, and the Netherlands between 2008 and 2013. We use 3 measures of managerial overconfidence: the press coverage of chief executive officers, his/her age, and his/her experience in the industry. Our results show that the firms run by overconfident managers actually invest more in R&D expenditures, even after controlling for country, industry, and time factors. Overconfident managers not only spend more on R&D but also amplify the effect of financial determinants of R&D such as firm liquidity or profitability. Nevertheless, overconfident managers do not invest efficiently in R&D, and these expenditures can negatively affect the value of the firm.

Date: 2018
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https://doi.org/10.1002/mde.2917

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:39:y:2018:i:4:p:447-461

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