Abstract
This study examines how chief executive officer (CEO) overconfidence can influence the quantity, quality and direction of corporate innovation using Chinese firms for the period 2009–2016. Our results suggest that overall, CEO overconfidence has a positive impact on firm innovation productivity. Furthermore, this effect is significant for Chinese non-SOEs but not for Chinese SOEs. Specifically, an overconfident CEO can facilitate firm innovation in new technological areas but not in the firm’s existing areas. Additionally, we find that internal controls can regulate the relationship between CEO overconfidence and innovation. Interestingly, when the internal control level is too high or too low, the correlation between CEO overconfidence and innovation productivity is not significant.
Highlights
It is well recognized that innovation is vital for a firm’s growth and long-term competitive advantage (Porter, 1992; Loukil et al, 2020)
chief executive officer (CEO) Overconfidence and Firm Innovation Productivity This paper adopts a step-by-step regression approach, focusing on the impact of CEO overconfidence on the productivity of CEO Overconfidence, Ownership Differences, and the Productivity of Firm Innovation we examine the differences in the impact of CEO overconfidence on the productivity of corporate innovation among firms with different ownership types
The results show that the correlation coefficient of CEO overconfidence and LN_KNOWNCLASS is 0.09, which is significant at the 5% level
Summary
It is well recognized that innovation is vital for a firm’s growth and long-term competitive advantage (Porter, 1992; Loukil et al, 2020). Among various CEO characteristics, CEO overconfidence is considered to be highly related to firm innovation since overconfident CEOs are likely to take risks, address challenges, and implement corporate changes such as investing in R&D activities (Malmendier and Tate, 2005a,b; Galasso and Simcoe, 2011; Hirshleifer et al, 2012; Nowak, 2018). CEOs are supervised by all the parties mentioned above, and enterprise innovation is an activity with high investment, high risk and a long return cycle, which restrains the impact of CEO overconfidence on firm innovation In contrast to their state-owned counterparts who are directly controlled and heavily influenced by SASAC, Chinese private enterprises are more independently operated. The innovation measure is significantly correlated with most of the control variables
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