CEO Overconfidence and Corporate Innovation Outcomes: Evidence From China

Abstract

This study examines how chief executive officer (CEO) overconfidence can influence the quantity, quality and direction of corporate innovation using Chinese firms for the period 2009–2016. Our results suggest that overall, CEO overconfidence has a positive impact on firm innovation productivity. Furthermore, this effect is significant for Chinese non-SOEs but not for Chinese SOEs. Specifically, an overconfident CEO can facilitate firm innovation in new technological areas but not in the firm’s existing areas. Additionally, we find that internal controls can regulate the relationship between CEO overconfidence and innovation. Interestingly, when the internal control level is too high or too low, the correlation between CEO overconfidence and innovation productivity is not significant.

Celebrity CEOs and firm innovation investment: Evidence from Chinese-listed companies

“…Previous studies have mainly focused on the effect of executives’ demographic characteristics on innovation activities ( Hambrick, 2007 ; Lin et al, 2011 ; Heyden et al, 2017 ). Recently, scholars have investigated how strategy decisions and activities are directly influenced by psychological traits, including overconfidence, narcissism, and hubris ( Park et al, 2018 ; Tang et al, 2018 ; Li and Zhang, 2022 ; Wang et al, 2022 ). In line with these studies in the subfield of innovation management, we explored the impact of CEOs’ celebrity status on firm innovation investment by suggesting social status as a behavioral reference for decision-making.…”

“…In particular, celebrity CEOs have great confidence in their abilities relevant to innovation strategy ( Lovelace et al, 2018 ), and they may be more likely to overestimate the probability of success and profitability from investing in new products ( Camerer and Lovallo, 1999 ). Previous research has suggested that there is a positive and significant correlation between overconfident CEOs and innovation input ( Li and Zhang, 2022 ). Hence, we argue that celebrity CEOs are more likely to increase innovation investment, compared to non-celebrity CEOs.…”

“…Thus, CEOs in SOEs have to consider the general policy of government and SASAC’s orientation when he/she develops and implements his or her firm’s strategies ( Bai et al, 2006 ). Hence, it inevitably leads to a decline in the influence of celebrity CEOs’ individual motivation on firm decision-making ( Li and Zhang, 2022 ).…”

“…The R&D intensity is 0.018 in SOEs, lower than 0.024 in non-SOEs, meaning that the difference between SOEs and non-SOEs in innovation investment is huge. Private enterprises are more independently operated than SOEs, and their CEOs have more power in firm’s daily operations and decision-making ( Li and Zhang, 2022 ). Hence, in the private sector, the impact of celebrity CEOs’ personal motivation and decision preference on firm strategies faces fewer constraints and restrictions.…”

Board's informal hierarchy: influences on enterprise innovation quality

“…On the other hand, should these high-level directors in the informal hierarchy choose intense R&D activities to pursue innovation quality, any failure would not only result in significant company losses but, more importantly, expose them to senior administrative accountability. This could adversely affect their later promotion prospects and the maintenance of their informal status within the board (Li and Zhang, 2022). For non-SOEs, they face intense domestic market competition and must rely on enhancing innovation quality to surpass pure price competition, capturing long-term growth points in performance (Chen et al, 2020).…”