Executive Overconfidence Research Articles

Overseas Returnee Executives and Digital Transformation of Enterprises: From the Perspective of Executive Compensation Gap and Executive Overconfidence

This article selects panel data of A-share listed companies in Shanghai and Shenzhen from 2013 to 2022, uses a fixed effects model to study the relationship between overseas returnee executives and digital transformation of enterprises, and analyzes the moderating effects of executive compensation gap and executive overconfidence. The research results indicate that overseas returnee executives can significantly promote the digital transformation of enterprises; The salary gap and overconfidence of executives play a negative moderating role in the positive relationship between overseas returnees executives and digital transformation of enterprises; Heterogeneity analysis shows that overseas returnee executives have a greater impact on high-tech enterprises, low marketization areas, and enterprises in the eastern region than on non-high-tech enterprises, high marketization areas, and enterprises in the central and western regions. To better solve the problems of "not being able to transform", "unwilling to do", and "afraid to transform" in the process of enterprise digital transformation, firstly, it is necessary to effectively utilize the high-quality human resources of overseas returnee executives and provide them with reasonable care and support to better play their role; The second is to optimize the executive compensation structure and strengthen the correlation between compensation and performance; The third is to pay attention to leadership training and psychological counseling for executives, and ensure objective analysis and sufficient discussion in the decision-making process of digital transformation.

The Effect Of R&D Volatility on Market Value with The Role of Executive Overconfidence as a Moderating Variable

The Effect Of R&D Volatility on Market Value with The Role of Executive Overconfidence as a Moderating Variable

Executive Overconfidence and Corporate Environmental, Social, and Governance Performance

ESG (environmental, social, and governance) has gained widespread recognition as a fundamental investment approach on a global scale. Demonstrating strong ESG performance has evolved into a vital strategic imperative for fostering sustainable corporate growth and bolstering competitiveness. Given their critical roles within companies, it is crucial for decision-makers to investigate the impact of executive overconfidence on ESG performance. Through an examination of Chinese A-share listed companies spanning the years 2009 to 2020, this research reveals a significant correlation between executive overconfidence and improved corporate ESG performance. Mechanism tests uncover that overconfident executives exhibit robust risk-taking abilities and a heightened drive to garner attention, both of which contribute to the enhancement of ESG performance. Heterogeneity analysis demonstrates that, in companies characterized by lower-quality accounting information, lower institutional shareholding ratios, ample cash flow, and increased government subsidies, the positive influence of executive overconfidence on ESG performance is even more pronounced. Furthermore, our investigation unveils that overconfident executives exert a positive impact on corporate ESG performance through three primary pathways: assuming responsibility for environmental protection (E), embracing social responsibility (S), and fortifying corporate governance (G). It is worth noting that this boost in ESG performance, in turn, translates into an enhancement of corporate value. Ultimately, this research contributes to a deeper understanding of the economic ramifications of executive overconfidence and enriches the body of knowledge pertaining to the mechanisms for enhancing ESG performance.

CEO Overconfidence and Corporate Overseas M&A: The Case of Techcent Environment Company

Purpose – In recent years, overseas M&As have become an important way for enterprises to invest and expand. Yet, most overseas deals are not successful. Behavioral finance research attributes the failure of overseas M&A to the irrational cognition of corporate decision-makers: that is, overconfidence. This study focuses on exploring the relationship between CEO overconfidence and overseas M&A, and clarifying the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Design/Methodology/Approach – First, based on the hubris hypothesis, this study reviews the literature on CEO overconfidence and overseas M&A. Second, this study uses the case analysis method, taking Techcent Environmental Co., Ltd., as an example, to study the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Findings – Overconfident CEOs tend to make enterprises carry out overseas M&As and use cash in the settlement. At the same time, overconfident CEO overseas mergers and acquisitions have a negative impact on both short-term and long-term corporate performance. Research Implications – This study expands the scope of case studies on the theory of executive overconfidence in behavioral finance, verifies the hubris hypothesis, enriches the case study literature on CEO confidence in behavioral finance, and provides reference for the management and overseas M&As of corporate executives.

Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data

The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.

Top Executives’ Overconfidence and Investment Efficiency Based on Data Analysis by Regression Method and CSMAR: Evidence from China

This paper studies the impact of management's overconfidence on corporate investment and decision-making. Using the China A-share listed companies and the data from the CSMAR database, applying the regression method to estimate the investment efficiency of the enterprises, this research studies the quantitative relationship between the executive overconfidence and the panel data model and packet regression. This paper finds that management overconfidence is positively associated with an inefficient corporate investment. Strictly controlling the confidence level of enterprise management and strengthening supervision are important measures to ensure the good operation of enterprises, reduce operational risks and achieve sustainable development.

Gender Difference, Overconfidence and Corporate Social Responsibility A Rising Strength of Female

We present and examine a new theoretical framework that seeks to explain differences in CEOs’ gender and firm-level corporate social responsibility (CSR) performance. In contrast to previous CEO-centered explanations, our theory emphasizes how executives as vital linkers construe their firms’ CSR. Drawing from gender role theory and upper echelons theory, we contend that when females hold the post of CEOs, they experience treats rooted in negative stereotypes about gender determinism, which in turn enhances their firm’s CSR performance. Our formal analysis suggests that executive overconfidence mediates the positive relation between CEO gender difference and CSR. Notably, female CEOs are associated with higher executive overconfidence, which further leads to an increase in CSR. An extension of our model also shows that, when the level of the board independence gets higher, the effects of CEO gender difference will lessen. We test our predictions empirically with a sample of Chinese firms from the Shanghai or Shenzhen stock exchange in the years 2010 to 2018. Our results are consistent with proposed hypotheses and are robust to different empirical operationalization. Implications and future research directions are discussed.

Executive Overconfidence, Digital Transformation and Environmental Innovation: The Role of Moderated Mediator.

With the increasingly prominent energy and environmental problems, environmental innovation has become a critical path to achieving the goal of coordinating economic development and environmental protection fundamentally. This study aims to examine the impacts of executive overconfidence on environmental innovation and the mediating role of digital transformation. We conduct empirical tests based on the panel data of Chinese publicly listed enterprises during the period of 2007–2019. The results exhibit that (a) executive overconfidence can significantly promote environmental technology innovation but has no obvious effect on environmental management innovation; (b) executive overconfidence can significantly enhance digital transformation, and, accordingly, digital transformation can significantly promote environmental technology innovation and environmental management innovation; (c) industry competition and economic policy uncertainty can enhance the positive effect of executive overconfidence on digital transformation; and (d) a firms’ asset size can enhance the impact of digital transformation on environmental technology innovation; internal control positively moderates the impact of digital transformation on environmental technology innovation and negatively moderates the impact on environmental management innovation. This study not only breaks the stereotype about overconfidence and confirms its positive impact on digital transformation and environmental innovation but also provides insights for enterprises to improve environmental innovation through digital transformation.

Government Regulation, Executive Overconfidence, and Carbon Information Disclosure: Evidence From China.

Climate change has put countries around the world under great pressure to reduce greenhouse gas emissions. Chinese government has proposed that China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. A low-carbon lifestyle is becoming a new trend in China. Therefore, the products of firms that actively respond to climate change are more popular for consumers in China. In the Internet era, the carbon information disclosed by firms has become an important way for consumers to understand the behavior of firms in responding to climate change. In the existing literature on the influencing factors of carbon information disclosure, the psychological factors of executives are seldom investigated. Using a sample of Chinese listed firms in low-carbon pilot provinces and cities during the period of 2015–2019, this study explores the influence of government regulation and executive overconfidence on the quality of carbon information disclosure. The results show that government regulation has a significantly positive impact on the quality of carbon information disclosure. The results also reveal that executive overconfidence negatively affects the quality of carbon information disclosure. Moreover, executive overconfidence negatively moderates the relationship between government regulation and the quality of carbon information disclosure. Our findings make a significant contribution to the role of executive’s psychological factors in firm’s behaviors and provide new insights and policy implications for government, firms, consumers, and other stakeholders.

The Pandemic, Gender, and (Firm) Performance

Do corporate financial decisions made by female executives differ from that of male executives? We try to answer the question by using firm-level data. We identify few critical differences between corporations run by gender-homogeneous versus gender-heterogeneous executive boards using a unique instrumental variable. First, the firms run by heterogeneous groups issue less debt. Second, the heterogeneous boards experience positive asset growth. However, there is no significant difference between the two groups when making an acquisition, market leverage, and equity issuance decisions. These results are robust to industry-level fixed effects, an alternative definition of the gender diversity of a corporate board, and whether a firm has a female CEO. When faced with uncertainty related to the pandemic, both groups make similar decisions regarding capital structure and corporate investment. The results of this study point to the ‘Male Executive Overconfidence’ theory in financial economics.

Executive Overconfidence and Green Innovation

As one of the important ways to achieve sustainable economic development, enterprise green innovation will also have an important impact on the future development of enterprises. Through the analysis, it is found that green innovation can realize the sustainable development of enterprises. However, green innovation has the characteristics of high risk and double externality, so the enthusiasm of enterprise green innovation is relatively low. As the decision maker of enterprises, the characteristics of management will have an important impact on green innovation. This paper studies the influence of Managerial Overconfidence on green innovation. This paper first studies the impact of management overconfidence on enterprise risk-taking ability, and finds that management overconfidence can improve enterprise risk-taking ability. Then it studies the impact of enterprise risk-taking ability on green innovation. The higher the enterprise risk-taking ability is, the more conducive to the implementation of green innovation activities. Through theoretical analysis, this paper concludes that management overconfidence can further promote the green innovation of enterprises by improving the risk-taking ability of enterprises.

Overconfidence and narcissism among the upper echelons: a systematic literature review

Research has been trying to analyze cognitive decision making processes of top-executive for decades. In particular, economic and organizational research on overconfidence (e.g., the notion that one is better than the average) and narcissism (e.g., exaggerated feeling of self-importance and the need for admiration) among the upper echelons has shown to influence firm strategies and firm level outcomes in similar ways. Yet these approaches appear in distinct research disciplines. Although both constructs are theoretically and empirically linked, and have shown to affect key organizational outcomes, surprisingly little clear empirical consensus exist how these constructs—individually and mutually—affect firm level outcomes. I try explain this puzzle by providing an overview of the leading approaches of executive overconfidence and executive narcissism research. To disentangle both constructs conceptionally and empirically, I review a large sample of articles that are nested in leading economic and business journals. Thus, I identify key operationalization issue and discuss how divergent literature streams in Economics and Organizational Behavior may benefit from each other. The review suggest that paying more attention—theoretically and empirically—to the interaction of overconfidence and narcissism may help to augment knowledge accumulation in the field. Furthermore, greater validation concerns of unobtrusive measures and its endogenous nature may help to rule out alternative explanations. Generally speaking, the results suggest that top-executive overconfidence and narcissism are not mere interesting psychological biases but affect firm-level outcomes in important ways.

The influence of executive compensation incentives on R&D investment: the moderating effect of executive overconfidence

ABSTRACT Previous analyses of the relationship between executive compensation incentives and R&D (Research and Development) investment have resulted in contradictory findings. This study attempts to resolve these contradictions by exploring the nonlinear relationship between executive compensation incentives and R&D investment, then examining the moderating effect of executive overconfidence. Using the 173 Global Entrepreneurship Monitor (GEM) companies, that disclosed data from 2012–2015 as a sample, a multiple regression analysis model is constructed. The results show that there is an inverted u-shaped relationship between executive compensation incentives and R&D investment. Moreover, the executive overconfidence of senior executives has a positive moderating effect between executive compensation incentives and research and development.

Peer effect in the initial recognition of goodwill

This study investigates the peer effect in the initial recognition of goodwill. We find that firms imitate their peers in the initial recognition of goodwill. The higher the tendency for imitation, the higher the proportion of goodwill recognized. Imitation behavior in the initial recognition of goodwill cannot be explained by information acquisition or rivalry motivations. Instead, we find evidence that managers’ opportunistic motivations explain the peer effect in the initial recognition of goodwill and the overestimation of goodwill arising from imitation tendencies. Executive overconfidence weakens the peer effect but exacerbates the overestimation of goodwill caused by imitation tendencies. Finally, the higher the imitation tendency, the greater the probability and amount of goodwill impairment in the future. This further confirms that the peer effect leads to overestimation of goodwill. The findings of this study enrich the literature on goodwill and provide insightful empirical evidence for regulating goodwill accounting. The results show that the conservatism principle should be reinforced in the initial recognition of goodwill.

R&D volatility and market value: the role of executive overconfidence

PurposeSignificant increase or decrease in research and development (R&D) expenditure may have an immense impact on market value. Based on the punctuated equilibrium theory, this paper aims to empirically analyze the impact of R&D volatilities on market value and the moderating effect of executive overconfidence.Design/methodology/approachThe study uses the panel data set that covers 902 Shanghai and Shenzhen A-share manufacturing listed firms and multiple regression method to test the theoretical hypotheses.FindingsThe results show that both positive and negative R&D volatilities have a robust and significant positive impact on the market value. Further analysis shows that the executive overconfidence positively moderates the relationship between R&D volatilities and market value.Research limitations/implicationsIn a rapidly changing and highly competitive environment, firms should recognize that the balance of innovation strategies will help to bring higher market value. Furthermore, firms could improve corporate governance to make the best of managerial characteristics, such as overconfidence, on the innovation decision-making process.Originality/valueBy pushing the static perspective to a dynamic perspective and empirically documenting the role of executive overconfidence, this study contributes to the literature on the relationship between R&D expenditure and market value, generating theoretical and practical insights for firms to improve innovation governance and innovation strategies to achieve better business performance.

Are overconfident executives alike? overconfident executives and compensation structure: Evidence from China

We study the effect of executive overconfidence on their compensation structure by employing a sample of listed firms in China, an economy with a relatively collective culture. The empirical findings demonstrate that like those in the U.S., overconfident CEOs in China also tend to have more incentive compensation despite the different culture. Further analysis shows that state ownership weakens the sensitivity of overconfident executives to incentive compensations. In addition, by examining the effect of an exogenous shock, we find that while the 2012 anti-corruption campaign has impacts on the compensation structure of both SOEs and non-SOEs, it further increases the incentive-pay sensitivity gap between overconfident executives of SOEs and non-SOEs.

Research on Property Rights, Revenue Transparency and Equity Financing Costs——Based on the Perspective of CEO Overconfidence

[Abstract] This paper takes the Chinese listed company with the equity refinancing qualification from 2012 to 2013 as the research object, and uses the residual revenue model to calculate the equity financing cost. This paper discusses the impact of the overconfidence of executives on the equity financing cost and its impact mechanism. The unique institutional background examines the differences in property rights characteristics. The research found that: (1) executive overconfidence has a negative impact on the cost of equity financing, executives tend to be overconfident, the higher the equity financing cost of the company; (2) the overconfidence of executives to state-owned enterprises compared to private enterprises The negative impact of financing costs is more significant; (3) in addition, this paper also examines the potential impact mechanism of executive overconfidence on the cost of equity financing. The quality of information disclosure and the risk of investor prediction have a mediating effect on the impact of executive overconfidence on equity financing costs.

Executive Equity Incentives, Overconfidence and Corporate Inefficient Investment

In the past research on equity incentives, the influence of incentive system on individual psychological factors was often neglected. From the perspective of behavioral company finance, this paper takes executives from 2010 to 2016 China A-share listed companies as research samples to research framework for overconfidence, executive equity incentives, and corporate inefficient in-vestment. The results of the study show that equity incentives can alleviate the underinvestment behavior of executives by influencing executives’ over-confidence, and executive overconfidence is partly a sub-mediating effect. However, for over-invested enterprises, the indirect effect of executive over-confidence generated by equity incentives on corporate over-investment is a deterioration, and the direct effect of equity incentives is opposite to the indirect effect. So executives’ overconfidence in equity incentives, in the ex-cessive investment of enterprises, plays a special mediating effect—the cover effect.

Weakening Effect of Executive Overconfidence on Equity Incentive—The Empirical Evidence from Chinese Listed Companies

The paper takes Chinese listed companies from 2010 to 2016 as samples, to examine the relationship between executive overconfidence and equity incen-tive. Results show that executive overconfidence has a significant weakening effect on equity compensation incentives (including stock options and re-stricted stocks), that is, compared with rational executives, the company will reduce the equity incentives for overconfident executives.

Executive overconfidence and compensation structure

We examine the impact of overconfidence on compensation structure. Our findings support the exploitation hypothesis: firms offer incentive-heavy compensation contracts to overconfident Chief Executive Officers (CEOs) to exploit their positively biased views of firm prospects. Overconfident CEOs receive more option-intensive compensation and this relation increases with CEO bargaining power. Exogenous shocks (Sarbanes-Oxley Act of 2002 (SOX) and Financial Accounting Standard (FAS) 123R) provide additional support for the findings. Overconfident non-CEO executives also receive more incentive-based pay, independent of CEO overconfidence, buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence.