Governance, Board Inattention, and the Appointment of Overconfident CEOs

47 Pages Posted: 25 Dec 2013 Last revised: 8 Feb 2017

Suman Banerjee

Stevens Institute of Technology

Lili Dai

University of New South Wales (UNSW) - School of Accounting

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: January 2017

Abstract

Are overconfident executives more likely to be promoted to CEO? 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 CEO 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 (January 2017). 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)

Lili Dai

University of New South Wales (UNSW) - School of Accounting ( email )

Room 3038 South Wing 3rd Floor
Quadrangle Building
Sydney, NSW 2052
Australia

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

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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