Abstract
This study examined the effect of CEO overconfidence on restaurant performance and how franchising, a key business format in the restaurant industry, affects the relationship. Based on the notion that overconfident individuals take more risks than non-overconfident people, this study hypothesized that CEO overconfidence positively (negatively) influences restaurant growth (profitability). Furthermore, since franchising reduces operational and financial risk, this study hypothesized that franchising moderates the relationship between CEO overconfidence and firm performance. The results of this study confirmed that CEO overconfidence positively influences firm growth but negatively affects firm profitability in the restaurant industry. This study also found that franchising negatively (positively) influences the effect of CEO overconfidence on restaurant firm growth (profitability). The results suggest that overconfident CEOs are more suitable for growth-seeking restaurant firms but less desirable for profit-seeking firms. The results also highlight that franchising mitigates the risk associated with CEO overconfidence. More detailed results and implications are discussed in this article.
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