What Is CEO Overconfidence? Evidence from Executive Assessments / Steven N. Kaplan, Morten Sorensen, Anastasia A. Zakolyukina.

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Kaplan, Steven N

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27853.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

G31 - Capital Budgeting • Fixed Investment and Inventory Studies • Capacity
G41 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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Abstract: We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs' earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w27853 (Browse shelf(Opens below))	Not For Loan

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September 2020.

We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs' earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.