Abstract
This paper analyzes the relationship between leader power and overconfidence in the corporate context. Building on psychology research, we postulate that by activating self-serving cognition and illusion of control, the amount of power allocated to the leader of an organization positively influences the probability that he/she will exhibit overconfident beliefs. Using various measures of both formal and symbolic leader power we provide corroborating evidence for such endogeneous - power-based - origin of leader overconfidence. Then, we develop an empirical framework that allows to test the endogeneity-free effects of leader overconfidence on firm performance. Namely, we use a propensity score matching technique to construct a sample of reasonable counterfactuals (i.e., leaders in similar power-allocation conditions who do not exhibit overconfidence). As a result, we provide dissenting evidence about the effects of overconfidence, showing an economically and statistically significant positive influence of overconfidence on firm performance.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.