Does Difference in CEO Overconfidence Propensity Create Value in Strategic Alliances?

Abstract

This study examines complementarity of firm leaders’ psychological attributes in terms of their inclination towards overconfidence in cooperative activities. Examining the high-tech industry setting which is characterized by rapid obsolescence of products and technologies, frequent innovation activities, high unpredictability and volatility, we find that alliances formed between overconfident and moderate CEOs create the greatest value. The complementarity between firm leaders exhibiting distinct overconfidence attributes is further positively moderated by the degree of environmental munificence, R&D intensity, and market dynamics, whereas; it is negatively moderated by the degree of environmental complexity. Our research contributes to the alliance literature by presenting the first evidence of the value arising from the complementarity of psychological attributes of firm leaders, which contrasts with extant alliance literature which studies only the complementarity of resources between partnering firms. It also contributes to the behavioral economic literature by illustrating the potential positive aspects of overconfidence under certain contingencies, thus providing evidence as to why many firms hire and retain overconfident CEOs.