Abstract
AbstractWe use innovation premium (IP), proposed by Forbes, as a proxy for firm innovation to present evidence that firm value is positively associated with IP. The positive impact of the IP on firm value is amplified by overconfident CEOs, particularly in the high‐tech and biotech industries with a high proportion of intellectual capital and intangible assets. In a series of tests, we confirm that the results hold after controlling for endogeneity. our findings are consistent with the notion that the beneficial effect of corporate innovations generated by overconfident CEOs exists primarily in industries where innovations are in critical demand.
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