Abstract
This paper examines whether serving customers with overconfident CEOs enhances or reduces supplier firm value. Driven mainly by high information asymmetry (proxied by analyst coverage, firm asset, firm age, and idiosyncratic risk), results show that major customers’ CEO overconfidence can significantly increase firm value for informationally opaque suppliers. We also find that this value-enhancing effect occurs through the channels of customers’ high levels of innovation (proxied by R&D intensity, patents, and citations), but not through their high levels of investment. Overall, our findings indicate that serving overconfident customers benefits shareholders due to a positive spillover effect from customers firms’ aggressive search for growth opportunities.
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