Managerial Overconfidence: Evidence from Japanese CEOs

39 Pages Posted: 23 Apr 2012 Last revised: 1 Sep 2012

See all articles by Kotaro Inoue

Kotaro Inoue

School fo Engineering, Tokyo Institute of Technology

Hideaki Kiyoshi Kato

Nagoya University - Graduate School of Economics

Takashi Yamasaki

Kobe University - Graduate School of Business Administration

Date Written: April 21, 2012

Abstract

We test whether Japanese leading CEOs are optimistic and miscalibrated using 50 years of survey data conducted by the Nihon Keizai Newspaper on New Year’s Day. In a sense, this study is a complement to Ben-David, Graham and Harvey (2010), who find U.S. executives are severely miscalibrated using the 10 years of survey data. Our unique Japanese data provide an opportunity to examine CEO miscalibration under a different setting over a longer period of time. Though we use a completely different data set, our results are similar to Ben-David, Graham and Harvey (2010). However, we find several important differences. One of the interesting findings is the clear contrast of forecasts by CEOs between two different periods of Japanese economy: more conservative during the high growth period and more optimistic during the low growth period. Contrary to US CFOs, Japanese CEOs predict current trend would reverse. We also find Japanese CEOs are more optimistic and less miscalibrated than their U.S. counterparts. Corporate investment does not seem to increase with either optimism or miscalibration unlike the U.S. The performance of the portfolio based on CEOs’ recommendation is not better than the market average.

Keywords: Overconfidence, Behavioral Finance, Behavioral Corporate Finance, Managerial Forecast, Stock Market Forecasts, Stock Returns, Investment Policy

JEL Classification: G14, G15

Suggested Citation

Inoue, Kotaro and Kato, Hideaki K. and Yamasaki, Takashi, Managerial Overconfidence: Evidence from Japanese CEOs (April 21, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2043681 or http://dx.doi.org/10.2139/ssrn.2043681

Kotaro Inoue

School fo Engineering, Tokyo Institute of Technology ( email )

2-12-1 Ookayama, Muguro-ku
Tokyo, 152-8552
Japan

Hideaki K. Kato

Nagoya University - Graduate School of Economics ( email )

1 Furo-cho
Chikusa-ku
Nagoya 464-8601, 464-8601
Japan
+81-52-789-4928 (Phone)
+81-52-789-4928 (Fax)

Takashi Yamasaki (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1 Rokkodai-cho
Nada-ku
Kobe, Hyogo 657-8501
Japan

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