CEO Overconfidence and Management Forecasting

Hribar, Paul; Yang, Holly

doi:10.2139/ssrn.929731

Cited by 164 publications

(271 citation statements)

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“…Prior research indicates that CEO overconfidence affects corporate investment (Malmendier and Tate, 2008), financing, dividend policies (Malmendier and Tate, 2008;Cordeiro, 2009;Deshmukh, Goel, and Howe, 2013;Malmendier, Tate, and Yan, 2011;Hirshleifer, Low, and Teoh, 2012), the likelihood of an Accounting and Auditing Enforcement Release (Schrand and Zechman, 2012), and the likelihood of issuing overly optimistic management earnings forecasts (Hribar and Yang, 2016;Libby and Rennekamp, 2012). This study extends this line of research by investigating the effects of managerial overconfidence on fair value reporting.…”

Section: Introductionmentioning

confidence: 69%

“…Overconfident CEOs have unrealistically high expectations of their company's future performance (Hackbarth, 2003;Wong, 2008;Baker, Ruback, and Wurgler, 2007), issue more optimistic earnings forecasts (Hilary and Hsu, 2011;Hribar and Yang, 2016;Libby and Rennekamp, 2012), have a belief that they can ensure that high performance is achieved (Malmendier and Tate, 2005), overvalue their firm's projects (Heaton, 2002), pay less dividends (Cordeiro, 2009;Deshmukh et al, 2013), underestimate the impact of negative events on his/her firm's cash flows (Heaton, 2002;Malmendier and Tate, 2005), and are more likely to have financial misstatements that are later the subject of SEC enforcement actions (Schrand and Zechman, 2012). In summary, prior literature documents that overconfidence affects corporate investment, financing, dividend policies, accounting choices, and firm performance.…”

Section: The Relationship Between Ceo Overconfidence and Level 3 Fairmentioning

confidence: 99%

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CEO Overconfidence and Fair Value Reporting-the Moderating Effect of Corporate Governance

Hsu

2017

AJFA

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This project examines whether CEO overconfidence affects firm's fair value reporting. Moreover, prior literature indicates effective corporate governance mechanisms ameliorate the adverse impact of CEO overconfidence. Thus, this paper further investigates whether effective corporate governance will mitigate the association between CEO overconfidence and level 3 fair values. Using a US sample drawn from 2008 to 2011, the results of this paper show that firms with higher CEO overconfidence report more Level 3 fair values and gains from Level 3 fair values. The results also indicates that the positive relationship between higher CEO overconfidence and Level 3 fair values reporting is attenuated for firms with high corporate governance.

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Section: Introductionmentioning

confidence: 69%

Section: The Relationship Between Ceo Overconfidence and Level 3 Fairmentioning

confidence: 99%

CEO Overconfidence and Fair Value Reporting-the Moderating Effect of Corporate Governance

Hsu

2017

AJFA

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“…They find that managers increase the number of negative earnings forecasts before share purchases, and this effect is stronger for insider trades initiated by CEOs, which suggests that CEOs have the greatest influence over earnings forecasts. Similarly, using the option-based measure of CEO overconfidence, Hribar and Yang (2016) find that CEO overconfidence affects the propriety of management earnings forecasts, which also suggests that CEOs play an important role in earnings disclosure decisions. Therefore, in this study, I attribute the two facets of managerial overconfidence derived from management earnings forecasts to the firms' CEOs.…”

Section: Determinants Of Management Earnings Forecastsmentioning

confidence: 87%

“…Using both option-based and press-based measures of CEO overconfidence, Hribar and Yang (2016) find that overconfident CEOs are more likely to issue more optimistic earnings forecasts. They also find that CEOs who hold on to deep-in-the-money options also display miscalibration.…”

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Managerial Overconfidence and Corporate Finance Policies

Huang¹

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Traditional corporate finance models generally assume that agents are fully rational, but this assumption is not consistent with evidence from the psychology literature. For example, a particular type of bias, overconfidence, has been shown to have a substantial impact on various corporate decisions. Accordingly, this thesis aims to contribute to the fast-growing behavioral corporate finance literature by focusing on how overconfidence affects corporate finance policies. There are two types of overconfidence: (1) optimism and (2) miscalibration. Optimism is defined as agents' overestimation of the mean for uncertain distributions, whereas miscalibration is defined as agents' underestimation of variance.In the first study, I examine how CEO optimism affects corporate debt maturity choices. I first develop a simple model to illustrate that optimistic CEOs prefer more short-term debt and then empirically examine this prediction. Consistent with a demand-side story, I find that firms with optimistic CEOs tend to adopt a shorter debt maturity structure by using a higher proportion of shortterm debt (due within 12 months). This behavior of optimistic CEOs is not deterred by the high liquidity risk associated with such a financing strategy. The demand-side explanation remains robust even after considering six alternative drivers, including a competing supply-side explanation in which creditors are reluctant to extend long-term debt to optimistic CEOs.Due to the lack of a reliable measure for the second type of overconfidence, miscalibration, researchers are normally constrained from empirically examining the impact of miscalibration on corporate finance policies. In the second study, I develop accessible empirical measures to disentangle optimism and miscalibration through a novel exploitation of earnings forecasts issued by firm managers. Optimism is proxied by the earnings forecast error, whereas miscalibration is derived from the earnings forecast interval, after controlling for confounding factors. The resulting measures capture different aspects of the link between overconfidence and managerial decisions. In terms of investment, miscalibrated CEOs are more likely to scale up investment in real assets (especially via mergers and acquisitions); firms with optimistic CEOs display no such proclivity.In the third study, leveraging the overconfidence measures developed in the second study, I examine whether and to what extent optimism and miscalibration affect debt-equity choices differently. This study is important because the various types of overconfidence can have countervailing implications for debt or equity choices based on alternative capital structure theories.I show that firms with miscalibrated CEOs are more likely to issue debt both conditional and unconditional on accessing the external financing market, resulting in a greater increase in leverage.I further show that miscalibrated CEOs' reluctance to issue equity is attenuated by higher stock valuation. In contrast, firms with optimistic CEOs are fo...

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Executive personality and sustainability: Do extravertedchief executive officersimprove corporate social responsibility?

Hrazdil

Mahmoudian

Nazari

2021

Corp Soc Responsibility Env

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We utilise IBM's Watson Personality Insights service to infer chief executive officers' (CEOs') Big Five personality traits and examine whether CEO extraversion, an important personality trait associated with assertive behaviour, decisive thinking, and desire for social engagement, is associated with firms' corporate social responsibility (CSR) practices. Using a longitudinal dataset of Standard & Poor 500 firms for 2008–2016, we find that firms led by extraverted CEOs' experience higher CSR performance (both environmental and social), even after controlling for other personality traits and other CEO‐ and firm‐specific characteristics. In addition, we find that the relationship between CEO extraversion and CSR performance is more pronounced among industries with higher environmental impact. Consistent with upper echelons theory, our results suggest that firms' strategic environmental and social decisions are significantly influenced by the personal characteristics of corporate executives.

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CEO Overconfidence and Management Forecasting

Cited by 164 publications

References 32 publications

CEO Overconfidence and Fair Value Reporting-the Moderating Effect of Corporate Governance

CEO Overconfidence and Fair Value Reporting-the Moderating Effect of Corporate Governance

Managerial Overconfidence and Corporate Finance Policies

Executive personality and sustainability: Do extravertedchief executive officersimprove corporate social responsibility?

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