Corporate Diversification and Managerial Overconfidence

Andreou, Panayiotis C.; Doukas, John A.; Louca, Christodoulos

doi:10.2139/ssrn.2151920

Cited by 3 publications

(8 citation statements)

References 76 publications

(141 reference statements)

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“…Moreover, Andreou, Doukas, and Louca (2011) found a positive relation between overconfidence and diversification, concluding that overconfident CEOs exhibit higher propensity to diversify than non-overconfident managers, and tend to overestimate the benefits and to underestimate the costs of diversification. Interestingly, the overconfident CEO increases the breadth of a firm's business portfolio beyond when the "critical point" is reached (Palich, Cardinal, & Miller, 2000).…”

Section: Misguided Diversification Strategiesmentioning

confidence: 90%

“…They do not waste their time taking into consideration unlikely scenarios and alternative strategic choices. By leveraging their own intuitions and positive experiences, CEOs affected by hubris are usually able to quickly process information and recognize external opportunities (Hiller & Hambrick, 2005); their strategic decision making is faster than that of rational managers (Hiller & Hambrick, 2005), and they negotiate deals more rapidly (Aktas, De Bodt, Bollaert, & Roll, 2012). These good aspects are, however, offset by the fact that CEOs affected by hubris are frequently unable to see the potential threats in their strategic initiatives and forget to consider the multiple scenarios that may emerge.…”

Section: Ceos' Overprecision In Own Beliefsmentioning

confidence: 99%

“…Because they hold the core conviction that they possess all the precious knowledge and capabilities, hubristic CEOs typically favor a strategic decision process that is strongly centralized (Miller & Dröge, 1986) on their shoulders. They spend less time deliberating over decisions (Russo & Schoemaker, 1992), and negotiations with employees are more rapid (Aktas et al, 2012). However, hubristic CEOs tend to exclude other individuals from strategy decisions (Tetlock, 2000); the centralization of strategic decisions in a single individual ignores the potential contribution of others, especially when the CEO lacks the cognitive ability and technical skills to make specific strategic decisions.…”

Section: Ceos' Overplacement Of Their Own Performance Relative To Thamentioning

confidence: 99%

See 2 more Smart Citations

The Origin of Failure: A Multidisciplinary Appraisal of the Hubris Hypothesis and Proposed Research Agenda

Picone

Dagnino

Minà

2014

AMP

137

213

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The hubris hypothesis complements the extant debate on how people make judgments and decisions in organizations. Drawing on the origin of hubris in Greek mythology, the psychological approach, and finance studies, this paper portrays an informed picture of the current status of managerial hubris literature that develops a more advanced understanding of what is known about hubris. We present a conceptual map that provides a comprehensive appreciation of hubris antecedents-symptoms-strategic choices-feedback performance main cause effect relationships. Our proposed conceptual map draws on the idea that managerial hubris is one of the determinants of CEO judgments, strategic choices, and organizational performance. We also show that managerial hubris has a good side and a bad side and identify the implications for strategy formulation and implementation. By doing so, the study not only provides a multidisciplinary introduction to hubris that is tailored to scholars, but also distills a suite of suggestions for managing hubris symptoms and traps that may prove valuable to practitioners.

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Section: Misguided Diversification Strategiesmentioning

confidence: 90%

Section: Ceos' Overprecision In Own Beliefsmentioning

confidence: 99%

Section: Ceos' Overplacement Of Their Own Performance Relative To Thamentioning

confidence: 99%

See 1 more Smart Citation

The Origin of Failure: A Multidisciplinary Appraisal of the Hubris Hypothesis and Proposed Research Agenda

Picone

Dagnino

Minà

2014

AMP

137

213

View full text Add to dashboard Cite

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“…5 For a comprehensive overview on the role of boards, see Adams, Hermalin and Weisbach (2010). mism and payout policy (Deshmukh, Goel & Howe, 2013), cash policy (Huang-Meier, Lambertides & Steeley, 2016), accounting conservatism (Ahmed & Duellman, 2013), and firm diversification (Andreou, Doukas & Louca, 2011). 7 See, for instance, Croci, Petmezas, and Vagenas-Nanos (2010), Campbell et al (2011), Galasso andSimcoe (2011), Hirshleifer, Low, andTeoh (2012), Deshmukh, Goel, and Howe (2013), Hribar and Yang (2016), Huang-Meier, Lambertides, and Steeley (2016) and Sen and Tumarkin (2015).…”

Section: Orcidmentioning

confidence: 99%

“… See also Croci, Petmezas and Vagenas‐Nanos () and Sen and Tumarkin (). Further, empirical analyses find connections between CEO optimism and payout policy (Deshmukh, Goel & Howe, ), cash policy (Huang‐Meier, Lambertides & Steeley, ), accounting conservatism (Ahmed & Duellman, ), and firm diversification (Andreou, Doukas & Louca, ). …”

mentioning

confidence: 99%

Top management team optimism and its influence on firms' financing and investment decisions

Heizer

Rettig

2020

Rev Financ Econ

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Theory and evidence on the determinants of corporate financing and investment decisions are extensive and diverse. Apart from firm-, industry-, and time-specific factors, research also discusses the role of managers. For instance, Bertrand and Schoar (2003) identify general manager-specific effects in firm behavior. The idea is most intuitive for CEOs because they are the most prominent and visible decision-makers within a firm. Accordingly, existing research focuses on the influence of CEO characteristics on firm policies. However, CFOs and CIOs should also be expected to have an influence on cash, dividend, and capital structure policies. Findings of studies which investigate the influence of managers in specific corporate positions on different aspects of firm behavior do not fit into one big picture. For example, Bertrand and Schoar (2003) track managers across firms over time and find that CFOs (and all "other", unspecified officers) have more impact on financial decisions than CEOs. In contrast, 36%-47% of CEOs consider themselves to be the dominant decision-maker for financial and investment decisions compared to only 10%-24% of CFOs (Graham, Harvey, & Puri, 2015). This paper casts doubt on the assumption that an individual manager alone, such as the CEO, is decisive for a firm's action. We investigate the influence of managers' optimism, which is defined as a generalized positive expectation about future events. 1 Evidence shows that CEOs suffer from optimism and overconfidence and are more biased than the lay population (Graham, Harvey, & Puri, 2013). Most studies in the literature focus on the CEO because they assume that CEOs are the dominant decision-makers. However, what happens if decisions are actually made within teams? Our results indicate that corporate financial policies are driven by a collective attitude of the top management team (TMT). We find that if two or more members of the

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A Dynamic Behavioral Model of the Credit Boom

Peón

Antelo

Calvo

2015

Journal of Economic Issues

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In this paper we provide a dynamic model of banking competition where bounded rationality of some competitors explains how the credit cycle is amplified. We model the economic cycle following Rötheli (2012b) where boundedly rational banks, in their Bayesian learning, overestimate probabilities of success during booms and underestimate them during recessions. The main results obtained are three. First, the model suggests pessimism/underconfidence is not a powerful driver of credit cycles. Instead, it supports it is euphoria during large upswings what seeds the next crunch.Second, the dynamization of the model provides further insight on how boundedly rational competition amplifies the credit cycle. Finally, an additional prediction is that the effects of behavioral biases are expected to be more pervasive the lower the quality of the niche markets.

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Corporate Diversification and Managerial Overconfidence

Cited by 3 publications

References 76 publications

The Origin of Failure: A Multidisciplinary Appraisal of the Hubris Hypothesis and Proposed Research Agenda

The Origin of Failure: A Multidisciplinary Appraisal of the Hubris Hypothesis and Proposed Research Agenda

Top management team optimism and its influence on firms' financing and investment decisions

A Dynamic Behavioral Model of the Credit Boom

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