Governance, board inattention, and the appointment of overconfident CEOs

Abstract

Abstract Are overconfident executives more likely to be promoted to CEOs? 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. The results suggest that governance and board inattention can play a role, with overconfident executives being more likely to become CEOs in firms with entrenched and busy boards, suggesting that such boards might confuse luck-with-skill following the confident executives’ tendencies towards greater risk-taking.