Abstract
Firms with overconfident CEOs engage more in innovation and have more innovative success compared to firms with rational CEOs. However, the relation between CEO overconfidence and different types of innovation is unclear. It is important to differentiate between product and process innovation because both have distinct characteristics and are associated with different strategies. Building on the upper echelons perspective, we develop and empirically investigate theory on how CEO overconfidence relates to product and to process innovation. We find evidence that CEO overconfidence relates more strongly to product than to process innovation. With regard to environmental characteristics, our research shows that the relation between CEO overconfidence and product innovation is stronger in industries with low R&D intensity. Our study offers multiple contributions. First, we contribute to the literature on firm managers and innovation by differentiating between types of innovation, specifically product and process innovation, and integrating the implications of industry R&D intensity. Second, we advance the upper echelons perspective by comparing how CEO overconfidence relates to product and process innovation. Third, we transfer research on overconfidence and innovation to SME environments and identify CEO overconfidence as antecedent of SME innovation.
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