CEO Overconfidence and Corporate Financial Distress

28 Pages Posted: 18 Aug 2010

See all articles by Chao Rung Ho

Chao Rung Ho

National Chengchi University (NCCU) - Department of Finance

Date Written: August 15, 2009

Abstract

This paper examines the relation between CEO overconfidence and corporate financial distress. We investigate whether CEO overconfidence accounts for corporate financial distress using U.S. data from 1980 to 1994. We use CEOs’ private portfolio and their press coverage as proxies for overconfidence to test our hypothesis. We find that optimistic CEOs make biased investing decisions and reduce stockholder wealth. We also find that stock owner and vested options confirm that managerial overconfidence is more likely to go bankruptcy. Interestingly, overconfident CEOs mentioned in the Wall Street Journal will decrease the incidence of occurrence of corporate financial distress.

Keywords: Overconfidence; Corporate Financial Distress; Press Coverage.

JEL Classification: G33

Suggested Citation

Ho, Chao Rung, CEO Overconfidence and Corporate Financial Distress (August 15, 2009). Available at SSRN: https://ssrn.com/abstract=1659440 or http://dx.doi.org/10.2139/ssrn.1659440

Chao Rung Ho (Contact Author)

National Chengchi University (NCCU) - Department of Finance ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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