The Positive Effects of Biased Self-Perceptions in Firms

Gervais, Simon; Goldstein, Itay

doi:10.2139/ssrn.963249

Cited by 60 publications

(88 citation statements)

References 58 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Various models predict that overconfidence has desirable effects on the executive's performance (Goel and Thakor, 2000;Gervais and Goldstein, 2007;Gervais et al, 2010). Our analysis indicates overconfidence can be associated with financial reporting concerns and prior work has documented an association between overconfidence and distorted investment and financing decisions (e.g., Tate, 2005 and2008 among others).…”

Section: Resultsmentioning

confidence: 99%

See 1 more Smart Citation

Executive overconfidence and the slippery slope to financial misreporting

Schrand

Zechman

2012

Journal of Accounting and Economics

781

498

View full text Add to dashboard Cite

A detailed analysis of 49 firms subject to AAERs suggests that approximately one-quarter of the misstatements meet the legal standards of intent. In the remaining three quarters, the initial misstatement reflects an optimistic bias that is not necessarily intentional. Because of the bias, however, in subsequent periods these firms are more likely to be in a position in which they are compelled to intentionally misstate earnings. Overconfident executives are more likely to exhibit an optimistic bias and thus are more likely to start down a slippery slope of growing intentional misstatements. Evidence from a high-tech sample and a larger and more general sample support the overconfidence explanation for this path to misstatements and AAERs. Forthcoming: Journal of Accounting and EconomicsAbstract A detailed analysis of 49 firms subject to AAERs suggests that approximately one-quarter of the misstatements meet the legal standards of intent. In the remaining three quarters, the initial misstatement reflects an optimistic bias that is not necessarily intentional. Because of the bias, however, in subsequent periods these firms are more likely to be in a position in which they are compelled to intentionally misstate earnings. Overconfident executives are more likely to exhibit an optimistic bias and thus are more likely to start down a slippery slope of growing intentional misstatements. Evidence from a high-tech sample and a larger and more general sample support the overconfidence explanation for this path to misstatements and AAERs.

show abstract

Section: Resultsmentioning

confidence: 99%

“…Recent studies provide an explanation by offering examples of positive externalities of executive overconfidence that offset the noted negative consequences (e.g., Goel and Thakor, 2000;Gervais and Goldstein, 2007;Gervais et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

Executive overconfidence and the slippery slope to financial misreporting

Schrand

Zechman

2012

Journal of Accounting and Economics

781

498

View full text Add to dashboard Cite

show abstract

“…While, to our knowledge, the study of optimal contracting with heterogeneous beliefs in a dynamic principal-agent setting is new to this paper, static principal-agent models have been used to analyze situations with heterogeneous beliefs in papers such as Gervais, Heaton, and Odean (2006), Gervais and Goldstein (2007), and Bénabou and Tirole (2002). Another example of conceptually related work is Van den Steen (2001), who studies a variety of managerial problems in the presence of differing beliefs.…”

Section: Notesmentioning

confidence: 99%

Disagreement and Learning in a Dynamic Contracting Model

Adrian

Westerfield

2008

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe present a dynamic contracting model in which the principal and the agent disagree about the resolution of uncertainty, and we illustrate the contract design in an application with Bayesian learning. The disagreement creates gains from trade that the principal realizes by transferring payment to states that the agent considers relatively more likely, a shift that changes incentives. In our dynamic setting, the interaction between incentive provision and learning creates an intertemporal source of "disagreement risk" that alters optimal risk sharing. An endogenous regime shift between economies with small and large belief differences is present, and an early shock to beliefs can lead to large persistent differences in variable pay even after beliefs have converged. Under risk-neutrality, "selling the firm" to the agent does not implement the first-best outcome because it precludes state-contingent trades.

show abstract

“…Falk et al (2006) confirm this intuition and show that individuals with low confidence about their abilities abandon costly search much earlier than those with high confidence. Gervais and Goldstein (2007) study a model of a firm where the marginal productivity of individuals' e↵orts is amplified by other team members' e↵orts. In their model, the presence of an optimistic agent, who overestimates his marginal productivity and applies excessive e↵ort, results in higher e↵ort provision by his team members and a Pareto-improvement for the whole team.…”

Section: Introductionmentioning

confidence: 99%

Does Confidence Predict Out-of-Domain Effort?

2015

View full text Add to dashboard Cite

Predicting worker's e↵ort is important in many di↵erent areas, but is often di cult. Using a laboratory experiment, we test the hypothesis that confidence, i.e. the person-specific beliefs about her abilities, can be used as a generic proxy to predict future e↵ort provision. We measure confidence in the domain of financial knowledge in three di↵erent ways (self-assessed knowledge, probability-based confidence, and incentive-compatible confidence) and find a positive relation with actual e↵ort provision in an unrelated domain. Additional analysis shows that the findings are independent of a person's traits such as gender, age, and nationality.JEL Classification G11, J22

show abstract

The Positive Effects of Biased Self-Perceptions in Firms

Cited by 60 publications

References 58 publications

Executive overconfidence and the slippery slope to financial misreporting

Executive overconfidence and the slippery slope to financial misreporting

Disagreement and Learning in a Dynamic Contracting Model

Does Confidence Predict Out-of-Domain Effort?

Contact Info

Product

Resources

About