Valuation effects of overconfident CEOs on corporate diversification and refocusing decisions

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

doi:10.1016/j.jbankfin.2019.01.009

Cited by 23 publications

(7 citation statements)

References 98 publications

(137 reference statements)

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“…As the level of overconfidence of executives increases, mergers and acquisitions also increase, especially diversified mergers. But the benefits of mergers and acquisitions implemented by overconfident executives will be lower (Malmendier and Tate, 2005;Andreou et al, 2019). Overconfidence can lead to behavioral deviations of executives.…”

Section: Executive Characteristics and Environmental Information Disclosurementioning

confidence: 99%

Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China

et al. 2021

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Climate change has put countries around the world under great pressure to reduce greenhouse gas emissions. Chinese government has proposed that China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. A low-carbon lifestyle is becoming a new trend in China. Therefore, the products of firms that actively respond to climate change are more popular for consumers in China. In the Internet era, the carbon information disclosed by firms has become an important way for consumers to understand the behavior of firms in responding to climate change. In the existing literature on the influencing factors of carbon information disclosure, the psychological factors of executives are seldom investigated. Using a sample of Chinese listed firms in low-carbon pilot provinces and cities during the period of 2015–2019, this study explores the influence of government regulation and executive overconfidence on the quality of carbon information disclosure. The results show that government regulation has a significantly positive impact on the quality of carbon information disclosure. The results also reveal that executive overconfidence negatively affects the quality of carbon information disclosure. Moreover, executive overconfidence negatively moderates the relationship between government regulation and the quality of carbon information disclosure. Our findings make a significant contribution to the role of executive’s psychological factors in firm’s behaviors and provide new insights and policy implications for government, firms, consumers, and other stakeholders.

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Section: Executive Characteristics and Environmental Information Disclosurementioning

confidence: 99%

Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China

et al. 2021

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“…According to Andreou et al (2019), overconfidence promotes value-destroying diversification strategies and leads to a preference for diversifying investments, especially when internal financial resources are available. In addition, very confident CEOs tend to implement restructuring measures after diversification has taken place, i.e., they have to invest further resources to make the diversification work.…”

Section: Investment Behavior and Share Buybacksmentioning

confidence: 99%

Managerial overconfidence: promoter of or obstacle to organizational resilience?

Kunz

Sonnenholzner

2022

Rev Manag Sci

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Organizational resilience provides firms with the capability to face adverse circumstances successfully. Therefore, it constitutes an indispensable capability for each company. As indicated by Upper Echelon Theory, particularly executives and their personal traits exert a major impact on organizational capabilities, decision-making as well as action taking. Thus, they also should play an important role in promoting organizational resilience. However, so far literature lacks a comprehensive understanding regarding these relations. Accordingly, the present paper strives to add to such a comprehensive understanding with a particular focus on managerial overconfidence, one of the most widely and controversially discussed personality trait of executives. To pursue this goal, we develop a model comprising the relevant components of organizational resilience in terms of important resources, conduct a systematic literature review to identify the major corporate areas that are affected by managerial overconfidence and draw conclusions for the identified findings on the relation between organizational resilience and overconfidence. The analysis indicates a positive impact on social resources, a rather negative impact on procedural resources and a mixed impact on financial resources, where e.g. the effect on takeover activities is negative while the impact on financing preferences is at least partly positive. Moreover, the identified literature in large parts provides evidence regarding material resources, while social and procedural resources are covered to a lesser extent, indicating a need for further research.

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“…CEO overconfidence is relatively mature in the study of M&As, although previous works have only done univariate studies. CEO overconfidence is also widely used in other management research, including ambidextrous innovation (Wong et al, 2017), diversification (Andreou et al, 2019), big baths (Pierk, 2021), overinvestment (Kwon et al, 2021), and firm risk (Ali and Tauni, 2021). Many quantitative indicators have been used in the measurement of CEO overconfidence in the literature; for example, CEO shareholding (Malmendier and Tate, 2008), the relative compensation of CEOs (Huang et al, 2011), historical business performance, frequency of CEO M&As (Doukas and Petmezas, 2007), weight of manager personal characteristics (Barber and Odean, 2001), business climate index (Yu et al, 2006), CEO evaluation by mainstream media (Malmendier and Tate, 2008), and earnings forecast bias (Lin et al, 2008).…”

Section: Ceo Overconfidence and Mandasmentioning

confidence: 99%

Chief Executive Officer Proactive Personality and Acquisitions: A Fuzzy Set Qualitative Comparative Analysis of China's Listed Firms

2021

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The role of the CEO in an enterprise's management decisions renders their individual characteristics influential in decisions about mergers and acquisitions (M&As). Personal characteristics are based on many aspects, therefore, we provide a multi-angle insight into the personal characteristics of managers. Drawing on the upper echelons theory, we examine whether CEOs' proactive personality affects merger and acquisition decisions. The fuzzy-set qualitative comparative analysis (fsQCA) is performed using a sample of 64 listed firms in China for the period 2010–2019. There are three solutions for cross-industry mergers, and five for intra-industry mergers. The results suggest that: (a) proactive and overconfident CEOs are inclined toward cross-industry mergers; (b) non-proactive and low-educated CEOs are inclined toward intra-industry mergers; (c) emerging industry enterprises tend to choose intra-industry mergers; (d) overconfident CEOs are more likely to undertake cross-industry mergers in traditional industries.

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Valuation effects of overconfident CEOs on corporate diversification and refocusing decisions

Cited by 23 publications

References 98 publications

Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China

Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China

Managerial overconfidence: promoter of or obstacle to organizational resilience?

Chief Executive Officer Proactive Personality and Acquisitions: A Fuzzy Set Qualitative Comparative Analysis of China's Listed Firms

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