Executive Overconfidence and Securities Class Actions

57 Pages Posted: 13 May 2014 Last revised: 23 Mar 2018

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

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

T. Mandy Tham

Date Written: December 31, 2016

Abstract

Overconfident CEOs tend to have over-positive views of their own skills and of future corporate performance. Thus, we hypothesize that overconfident executives are more likely to engage in reckless or intentional actions that give rise to SCAs. We find that executive-overconfidence increases SCA-likelihood, which is ameliorated by improved governance (following SOX) and reductions in risk-taking incentives (following SFAS-123R). Post-SCA, consistent with being regarded as more blame-worthy, there is greater likelihood of overconfident-CEO turnover. Overconfident CEOs learn from prior SCAs, with SCAs attenuating future litigation risk. Companies, similarly, are less likely to hire an overconfident CEO after a SCA.

Keywords: Overconfidence, Securities Class Actions, Governance

JEL Classification: G23, G32, G34

Suggested Citation

Banerjee, Suman and Humphery-Jenner, Mark and Nanda, Vikram K. and Tham, Tze-Minn, Executive Overconfidence and Securities Class Actions (December 31, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; 27th Australasian Finance and Banking Conference 2014 Paper; UNSW Business School Research Paper No. 2015 BFIN 01; Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2436264 or http://dx.doi.org/10.2139/ssrn.2436264

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

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

No contact information is available for Tze-Minn Tham

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