The Impact of Subordinate Executives’ Comparative Confidence and Competence on Corporate Risk-Taking

Abstract

We find that subordinate executives who are comparatively confident and competent in monitoring CEO actions tend to increase corporate risk-taking, primarily through investment and financing activities. Such investments may include capital expenditures, research and development, intangible assets, advertising expenses, and financing through cash, equity, and leverage, which are responsible for approximately 40.82% of return on assets volatility and 27.22% of cash flow volatility. Moreover, the impact of subordinate executives' comparative confidence and competence is more significant in competitive and complex business environments. However, the presence of highly experienced but older executives and more powerful and overconfident CEOs can undermine the effect.

Keywords: Subordinate executives; comparative confidence and competence; corporate risk-taking; investment and financing decisions

JEL Classification: G30; G32; M12