Governance, Board Inattention, and the Appointment of Overconfident CEOs

69 Pages Posted: 25 Dec 2013 Last revised: 23 Mar 2020

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Lili Dai

University of New South Wales (UNSW)

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Date Written: Octoberr 31, 2019

Abstract

Are overconfident executives more likely to be promoted to CEOs? Using an option-based overconfidence measure, we show that firms with overconfident executives tend to hire internally. Further, when firms hire internally, they are more likely to pick a more confident candidate. The results suggest that governance and board inattention can play a role, with overconfident executives being more likely to become CEOs in firms with entrenched and busy boards, suggesting that such boards might confuse luck-with-skill following the confident executives' tendencies towards greater risk-taking.

Keywords: Executive Overconfidence, CEO Turnover, New CEO Selection, Executive Tenure, Internal Appointment

JEL Classification: G32, G35

Suggested Citation

Banerjee, Suman and Dai, Lili and Humphery-Jenner, Mark and Nanda, Vikram K., Governance, Board Inattention, and the Appointment of Overconfident CEOs (Octoberr 31, 2019). Journal of Banking and Finance, Volume 113, 2020, Asian Finance Association (AsianFA) 2017 Conference, 30th Australasian Finance and Banking Conference 2017, Stevens Institute of Technology School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=2371435 or http://dx.doi.org/10.2139/ssrn.2371435

Suman Banerjee

Stevens Institute of Technology ( email )

525 River Street
Hoboken, NJ 07030
United States
2012613689 (Phone)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Lili Dai

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/ldaiprofile

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

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