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Levelheaded Leaders? An Investigation Into CEO Overconfidence Factors and Effects

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Degree
PhD, University of Cincinnati, Business Administration : Finance, .
Abstract
While many studies have revealed that experimental subjects and individual investors display behaviors associated with overconfidence, fewer authors have investigated whether corporate executives fall prey to these same tendencies. This dissertation examines the impact of nine overconfidence-linked individual characteristics on the financial decisions of CEOs from domestic exchange-traded firms. Chapters 1, 2, and 3 focus on firms’ capital investment, acquisition, and disposition activities, respectively. Overall, the overconfidence-linked variables do not consistently and significantly affect the aforementioned financial decisions. There are, however, a few exceptions. First, CEOs’ press portrayal and ownership stakes correlate with their firms’ relative investment rates and investment-free cash flow sensitivities. Second, CEOs who face potential competition from a larger number of operating segment vice presidents have higher acquisition and disposition likelihoods. Third, acquisitions’ announcement returns significantly increase (decrease) with CEOs’ stockholdings (tenure). While behavioral explanations exist for most of these relationships, so do agency justifications. Altogether, our lack of results contradict the findings of Malmendier and Tate (2005a,b) and could imply that firms are structured in such a way so as to control for managerial overconfidence.
Subject Headings
Business Administration, General
Keywords
Overconfidence; Corporate Finance; Investment; Mergers and Acquisitions; Behavioral Finance; CEOs; Disposition Effect; Escalation of Commitment; Loss Aversion; Overinvestment
Advisor
Dr. Steve B. Wyatt
Pages
113p.

Document number: ucin1148229672
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This ETD has been downloaded 278 times (through March 2013)