Abstract

http://ssrn.com/abstract=1595941
 
 

References (45)



 


 



CEO Overconfidence or Stock Mispricing and Growth? Reexamining the Effect of CEO Option Exercise Behavior on Corporate Investment


Jie Cao


Chinese University of Hong Kong - Department of Finance

December 11, 2009

17th Conference on the Theories and Practices of Securities and Financial Markets, 2009

Abstract:     
Malmendier and Tate (2005) use CEO late option exercise to proxy for unobservable CEO overconfidence and argue that managerial overconfidence can account for investment distortion. Consistent with CEO rationality, this paper provides an alternative explanation to their findings. By breaking the market-to-book ratio into firm mispricing, industry mispricing and growth opportunity, I find that industry mispricing and growth opportunity influence both CEO option exercise and corporate investment. When firms are overvalued or have better growth opportunities, CEOs are more likely to postpone their option exercise and at the same time invest more using internal cash. Moreover, CEO late option exercise fails to explain investment decisions after controlling for mispricing and growth opportunity. These findings suggest that CEO's personal portfolio decision may not be an appropriate proxy for managerial overconfidence.

Number of Pages in PDF File: 48

Keywords: CEO overcon…dence, CEO option exercise, Stock mispricing, Growth

JEL Classification: G31, G34

working papers series


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Date posted: April 28, 2010  

Suggested Citation

Cao, Jie, CEO Overconfidence or Stock Mispricing and Growth? Reexamining the Effect of CEO Option Exercise Behavior on Corporate Investment (December 11, 2009). 17th Conference on the Theories and Practices of Securities and Financial Markets, 2009. Available at SSRN: http://ssrn.com/abstract=1595941 or http://dx.doi.org/10.2139/ssrn.1595941

Contact Information

Jie Cao (Contact Author)
Chinese University of Hong Kong - Department of Finance ( email )
Room 1242 CYT Building
Shatin, NT
Hong Kong
(852) 3943 7757 (Phone)
(852) 2603 6586 (Fax)
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