What Is CEO Overconfidence? Evidence from Executive Assessments

Steven Kaplan (), Morten Sorensen () and Anastasia Zakolyukina
Additional contact information
Steven Kaplan: University of Chicago - Booth School of Business; NBER
Morten Sorensen: Dartmouth College - Tuck School of Business; CEPR

No 2020-115, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

Pages: 36 pages
Date: 2020
New Economics Papers: this item is included in nep-cwa
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Citations: View citations in EconPapers (3)

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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020115.pdf (application/pdf)

Related works:
Journal Article: What is CEO overconfidence? Evidence from executive assessments (2022)
Working Paper: What Is CEO Overconfidence? Evidence from Executive Assessments (2020)
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