Curbing Managerial Myopia: The Role of Managerial Overconfidence in Owner-Managed Firms and Professionally Managed Firms

2017 ◽  
Author(s):  
Jingoo Kang ◽  
Jun-Koo Kang ◽  
Minwook Kang ◽  
Jungmin Kim
Keyword(s):  
Managerial Myopia ◽  
Managerial Overconfidence

scholarly journals Behavioral CEOs: The Role of Managerial Overconfidence

2015 ◽  
Vol 29 (4) ◽  
pp. 37-60 ◽  
Author(s):  
Ulrike Malmendier ◽  
Geoffrey Tate
Keyword(s):  
Empirical Evidence ◽  
Investment Decisions ◽  
Corporate Investment ◽  
Financing Constraints ◽  
Managerial Overconfidence ◽  
Empirical Framework

In this paper, we provide a theoretical and empirical framework that allows us to synthesize and assess the burgeoning literature on CEO overconfidence. We also provide novel empirical evidence that overconfidence matters for corporate investment decisions in a framework that explicitly addresses the endogeneity of firms' financing constraints.

On the Verges of Overconfidence

2015 ◽  
Vol 29 (4) ◽  
pp. 3-8 ◽  
Author(s):  
Ulrike Malmendier ◽  
Timothy Taylor
Keyword(s):  
Public Policy ◽  
Stock Market ◽  
Capital Structure ◽  
Trading Volume ◽  
Market Returns ◽  
Empirical Measures ◽  
Stock Market Returns ◽  
Managerial Overconfidence ◽  
Rule Out

This symposium provides several examples of overconfidence in certain economic contexts. Michael Grubb looks at “Overconfident Consumers in the Marketplace.” Ulrike Malmendier and Geoffrey Tate consider “Behavioral CEOs: The Role of Managerial Overconfidence.” Kent Daniel and David Hirshleifer discuss “Overconfident Investors, Predictable Returns, and Excessive Trading.” A number of insights and lessons emerge for our understanding of markets, public policy, and welfare. How do firms take advantage of consumer overconfidence? Might government attempts to rule out such practices end up providing benefits to some consumers but imposing costs on others? How are empirical measures of CEO overconfidence related to investment and the capital structure of firms? Can overconfidence among at least some investors help to explain prominent anomalies in stock markets like high levels of trading volume and certain predictable patterns in stock market returns?

R&D investment and future firm performance: The role of managerial overconfidence and government ownership

2020 ◽  
Vol 41 (7) ◽  
pp. 1269-1281
Author(s):  
Imen Tebourbi ◽  
Irene Wei Kiong Ting ◽  
Hanh Thi My Le ◽  
Qian Long Kweh
Keyword(s):  
Firm Performance ◽  
Government Ownership ◽  
Managerial Overconfidence ◽  
D Investment

scholarly journals Evaluation of Managerial Overconfidence, Cash Holding, and Investment Efficiency in Companies

2021 ◽  
Vol 2021 ◽  
pp. 1-11
Author(s):  
Abdorreza Asadia ◽  
Maryam Oladia ◽  
Mohammad Ghasem Aghela
Keyword(s):  
Fixed Effects ◽  
Stock Exchange ◽  
Financial Statements ◽  
Investment Efficiency ◽  
Cash Holding ◽  
Data Set ◽  
Listed Firms ◽  
Managerial Overconfidence ◽  
Moderating Role

Managers’ overconfidence leads to overestimating their ability to manage cash sources. Holding more cash may result in overinvestment in projects and investment inefficiency consequently. The present study aims to investigate the effect of cash holding on investment efficiency with the moderating role of managerial overconfidence in Iranian companies. All listed firms in Tehran Stock Exchange, excluding banks, insurance, pension funds, and financial intermediaries, are included in the research. We have used data from financial statements of 91 companies over the period from 2010 to 2018 and conducted multiple regression models to test the hypotheses based on pooled and panel data set with fixed effects. The results indicate a positive relationship between managerial overconfidence and cash holding. The effect of cash holding on investment efficiency turns out to be significantly negative. Furthermore, managerial overconfidence has a significant moderating effect on the relation of the variables. This study is almost the first one, which has been done in emerging markets, so the study’s findings not only contribute to the existing literature on managerial overconfidence and investment efficiency but also assist policymakers, managers, and investors in making effective decisions.

scholarly journals Would Overconfident CEOs Engage More in Environment, Social, and Governance Investments? With a Focus on Female Representation on Boards

2021 ◽  
Vol 13 (6) ◽  
pp. 3373
Author(s):  
Jaehong Lee ◽  
Eunsoo Kim
Keyword(s):  
Firm Value ◽  
Female Leadership ◽  
Corporate Value ◽  
Female Representation ◽  
Negative Effects ◽  
Upper Echelon ◽  
Board Representation ◽  
Managerial Overconfidence ◽  
The Relationship

This study examines the relationship between CEO overconfidence, environment, social, and governance investments, and firm value. Drawing on insights from upper echelon and agency theory, greater female representation on boards is expected to act as an independent monitoring mechanism to control and reconcile CEO overconfidence which leads to enhancement of corporate value induced by environment, social, and governance investments. Empirical evidence in this study finds that, on average, overconfident managers tend to engage in ESG investments in South Korea. Furthermore, in firms with high environment, social, and governance investments, the negative association between CEO overconfidence and firm value is mitigated, showing that environment, social, and governance investments are effective moderators in controlling and constraining managerial overconfidence. Finally, we find that the joint impact of CEO overconfidence and environment, social, and governance investments on corporate value is distinctive in firms with female board representation. Taken together, we find that negative effects associated with CEO overconfidence can be alleviated by the role of female leadership that links corporate environment, social, and governance investments to firm value.

The relationship between managerial attributes and firm risk-taking

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahdi Salehi ◽  
Arash Arianpoor ◽  
Nader Naghshbandi
Keyword(s):  
Risk Taking ◽  
Developed Countries ◽  
Firm Risk ◽  
Managerial Behavior ◽  
Content Type ◽  
Listed Firms ◽  
Managerial Entrenchment ◽  
Managerial Myopia ◽  
Managerial Overconfidence ◽  
The Relationship

PurposeThe main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) and firm risk-taking on the Tehran Stock Exchange (TSE).Design/methodology/approachThe study’s sample comprises 150 companies listed on the TSE from 2011 to 2017. Risk-taking is calculated as the standard deviation (SD) of stock return. Explanatory factor analysis was performed to calculate the weight of each of the five variables managerial ownership, board independence, chief executive officer (CEO) tenure, board compensation and CEO duality as a proxy for managerial entrenchment. The study by Anderson and Hsiao (1982) was also used to calculate managerial myopia, and the study by Schrand and Zechman (2012) was used to calculate managerial overconfidence.FindingsThe results indicate that the effect of managerial entrenchment and managerial myopia on risk-taking of listed firms on the TSE is positive and significant, implying that an increase in CEO entrenchment is likely to give rise to risk-taking. The authors conjecture that this finding could be due to the investment projects impairing the firm performance in the long run. Furthermore, the effect of managerial overconfidence on listed firms' risk-taking on the TSE is significantly negative. Since overconfidence is one of the traits of narcissism and corporate managers tend to be encouraged and admired, it is implied that they tend to make efficient and low-risk investments that ultimately reduce the firm risk-taking.Originality/valueSeveral theoretical studies show that managerial behavior is a determining factor in the economy. One of the reasons which justify the originality of this study is the context and institutional environment. Undoubtedly, managerial behavior (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) is expected to have some significant variations in developing countries compared to prevailing in developed countries, particularly in the Iranian stock market the economic sanctions. Furthermore, due to the direct impact of individuals' psychological and behavioral characteristics on their decisions and the effect of companies' risk-taking on increasing and decreasing shareholders and companies' wealth, this research is essential. Given the function of designed behavioral criteria for assessing risk-taking behaviors, the relationship between managerial attributes and firms' risk-taking is still unclear and investigated in this study.

CFO Overconfidence and Cost Behavior

2021 ◽  
Author(s):  
Clara Xiaoling Chen ◽  
Julia Nasev ◽  
Steve Yu-Ching Wu
Keyword(s):  
Important Determinant ◽  
Agency Problems ◽  
Positive Association ◽  
Large Sample ◽  
Cost Behavior ◽  
Resource Adjustment ◽  
Managerial Overconfidence ◽  
Cost Stickiness ◽  
Practical Implications

Using a large sample of U.S. firms, we provide evidence of the effect of CFO overconfidence on firms' resource adjustment decisions. After controlling for CEO overconfidence, we find that CFO overconfidence is positively associated with cost stickiness. In addition, we find that CFO power relative to the CEO increases the positive association between CFO overconfidence and cost stickiness. Our study contributes to our understanding of the important role of CFOs in operational decisions such as resource adjustment decisions. We also extend the literature on cost behavior by highlighting managerial characteristics as an important determinant of resource adjustment decisions. Our study has important practical implications. Unlike resource adjustment decisions driven by agency problems or other incentive-related issues, such decisions driven by managerial overconfidence cannot be addressed with incentive contract designs. More promising ways to mitigate overconfidence-driven resource adjustment decisions include making overconfident managers aware of their potential behavioral biases and challenging their expectations.

scholarly journals THE ROLE OF INTERNAL FINANCING IN MEDIATING THE EFFECT OF MANAGERIAL OVERCONFIDENCE AND CORPORATE GOVERNANCE TOWARDS INVESTMENT EFFICIENCY

2021 ◽  
Author(s):  
Riski Amalia Madi ◽  
Hamrini Mutia ◽  
Enny Wati ◽  
sujono
Keyword(s):  
Corporate Governance ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Investment Efficiency ◽  
Panel Data Regression ◽  
Internal Financing ◽  
Corporate Funding ◽  
Owned Company ◽  
Managerial Overconfidence

This study aims to examine empirically the factors that influence investment efficiency in State-Owned Enterprises on the Indonesia Stock Exchange. This study was tested with two independent variables are managerial overconfidence and corporate governance, intervening variable is internal financing. The object of this research is the state-owned company for the period 2011-2018. 10 companies as the sample using purposive sampling technique. The analysis used in this research is panel data regression analysis. The results of this study found that investment efficiency in state-owned enterprises in Indonesia is largely determined by managerial overconfidence bias. Managers who have an overconfidence seek more aggressive and risky ventures so that they invest excessively beyond optimal levels. Managerial overconfidence in a manager can also strengthen the choice of internal financing, especially in state-owned companies. However, investment efficiency in this study is not influenced by corporate governance and internal financing. Corporate governance has also proven to have no role in corporate funding decisions. The role of internal financing as mediation was not found in this study.

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