Abstract
Are overconfident executives more likely to be promoted to CEO? Using an option-based overconfidence measure, we show that firms with overconfident executives tend to hire internally. Further, when firms hire internally, they are more likely to pick a more confident candidate. We propose, and test between two hypotheses, matching and board-failure, for favoring overconfident executives. We find support for the matching hypothesis. Specifically, firms that are candidates for a change in strategy (i.e., large and low-risk firms) tend to appoint overconfident-executives, and benefit in terms of improved corporate value and innovative efficiency.
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