Does Past Success Lead Analysts to Become Overconfident?

Behavioral Governance and Self-Conscious Emotions: Unveiling Governance Implications of Authentic and Hubristic Pride

“…As illustrated in Table II, several conceptual and empirical studies have been conducted in the field to analyze the role that managerial hubris plays in suboptimal individual behavior and detrimental corporate outcomes. Governance researchers have focused on examining both the antecedents and consequences of the dark connotation of pride using a diversity of closely related constructs such as hubris (Hayward and Hambrick, 1997;Li and Tang, 2010;Roll, 1986), overconfidence (Hilary and Menzly, 2006;Malmendier and Tate, 2005;Simon and Houghton, 2003), overoptimism (Lowe and Ziedonis, 2006), and narcissism (Chatterjee and Hambrick, 2007;Lubit, 2002). In a conceptual review and attempt to clarify the 541 Behavioral Governance and Self-Conscious Emotions relationship between these variables, Hiller and Hambrick (2005) proposed that both hubris and overconfidence refer to the same overarching construct of ''hyper-core self-evaluation.''…”

“…Malmendier and Tate (2005) found that executive hubris accounted for investment distortion, inducing corporations to rely more on internal rather than external financing. Studies conducted in the context of investment banks reported that financial analysts' overconfidence intensified with stronger perceptions of control (Stotz and von Nitzsch, 2005) and prior successful earnings forecasts, resulting in less accurate and further from the consensus future predictions (Hilary and Menzly, 2006).…”

“…Subjects neglect the quality of competition and their (excess) entry into the industry results in a failure Simon and Houghton (2003) 55 executives of small computer firms in Georgia Leads to risky product introductions that are less likely to succeed (although managers expressed extreme certainty about achieving success) Malmendier and Tate (2005) 477 US firms (1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994) Is proxied by holding in-the-money options and accounts for corporate investment distortion (rely on internal rather than external financing) Stotz and von Nitzsch (2005) 147 analysts at 9 investment banks (in 2002) A stronger perception of control increases financial analysts' overconfidence with regard to earnings forecasts Hayward et al (2006) N/A (conceptual) Entrepreneurs with socially constructed overconfidence deprive their ventures of resources, increasing the odds of their failure Hilary and Menzly (2006) 46909 quarterly earnings forecasts by analysts (1980)(1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997) More accurate earnings' prediction in the past leads to analysts' overconfidence in their ability to forecast future earnings, resulting in subsequently less accurate and further from the consensus forecasts Doukas and Petmezas (2007) 5334 UK acquisitions (1980-2004) Stems from self-attribution bias and leads to lower acquisition announcement returns and poor bidders' long-term performance Malmendier and Tate (2008) 394 US firms …”

“…To date, corporate governance literature has focused exclusively on the dark facet of this construct by analyzing the detrimental performance consequences of managerial hubris in various contexts such as mergers and acquisitions (Doukas and Petmezas, 2007), investment banks (Hilary and Menzly, 2006), and entrepreneurial ventures (Lowe and Ziedonis, 2006). In this article, we have urged researchers in the behavioral governance field to explore the bright side of pride as one of the key emotional factors capable of securing executive and corporate success.…”

Self-efficacy, overconfidence, and the negative effect on subsequent performance: A field study

“…Initial success can also lead financial analysts to become overly confident in their ability to predict the market, leading to lower subsequent performance [11].…”