Ceo Overconfidence, Esg Disclosure, and Firm Risk

Abstract

Environmental, Social, and Governance (ESG) has increasingly attracted the attention of firms and stakeholders. The purpose of this study is to examine whether the mediating role of ESG disclosure has a negative effect on CEO overconfidence and firm risk, especially based on investors' perspectives. Many studies on ESG disclosure were conducted in Europe and America. Most ESG disclosures are measured using manual checklist based on annual reports or firm websites. By using panel dataset of 225 manufacturing firms in Indonesia, Malaysia, the Philippines, Singapore and Thailand from 2012-2016 obtained from Thomson Reuters’ ESG score, the research shows that CEO overconfidence has no negative direct effect on firm risk but the role of ESG disclosure as a mediating variable has a negative effect on CEO overconfidence and firm risk. CEO overconfidence has a positive effect on ESG disclo­sure and ESG disclosure has a negative effect on firm risk. CEO with overconfidence characteristics will make the best decisions to disclose ESG in order to increase firm value and reduce firm risk.

Managerial Ability And Earnings Management: Moderating Role Of Risk-Taking Behavior

“…Higher managerial overconfidence occurs when the residual value of the firms is above the industry median. In comparison, lower managerial overconfidence occurs when the residual value of the firms is below the industry (Sumunar & Djakman, 2020). The result of the alternative test with managerial overconfidence adjustment can be seen in Table 5.…”

“…Based on the explanation, this research suggests that the moderating role of risk-taking behaviour on the effect of managerial ability on earnings management is more pronounced when managers also have higher managerial overconfidence. According to (Sumunar & Djakman, 2020), managerial overconfidence is measured by the residual value of regression of assets growth (change of total assets) on sales growth (change of total sales). Higher managerial overconfidence occurs when the residual value of the firms is above the industry median.…”

Do founder CEOs and overconfidence affect firm risk?

“…Likewise, Gao et al (2021) reveal that overconfident top managers increase Korean nonfinancial firms’ values. Meanwhile, using a sample of manufacturing firms in Southeast Asia, Sumunar and Djakman (2020) demonstrate that CEO overconfidence does not directly influence firm risk due to investors’ irrational behavior.…”

“…Salehi et al (2022) used a sample of Tehran-based firms to demonstrate that managerial overconfidence reduces firm risk during the year. However, Sumunar and Djakman (2020) used a sample of Southeast Asian manufacturing firms to indicate no relationship between CEO overconfidence and firm risk. Other variables can affect the relationship between CEO overconfidence and firm risk, resulting in prior studies' inconsistent findings.…”

CEO Overconfidence as Moderator of Sales Growth, Interest Coverage, Fixed Asset Intensity to Financial Distress

“…CEOs exhibiting overconfidence often have a higher probability of realizing profits vis-à-vis developmental costs. This inclination can augment company value and mitigate associated risks (Sumunar & Djakman, 2020). Elevated sales growth in companies augments the likelihood of higher profits and correlates positively with the associated debt obligations (Widiyantoro & Sitorus, 2019).…”