Making the Same Mistake All Over Again: CEO Overconfidence and Corporate Resistance to Corrective Feedback

Strategic Management Journal, Forthcoming

44 Pages Posted: 9 Jun 2014

See all articles by Guoli Chen

Guoli Chen

INSEAD - Singapore

Craig Crossland

McCombs School of Business

Shuqing Luo

University of Hong Kong

Date Written: June 8, 2014

Abstract

Firms often make mistakes, from simple manufacturing overruns all the way to catastrophic blunders. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future. In this paper, we explore an important but understudied influence on firms’ responses to corrective feedback – a CEO’s level of overconfidence. Using multiple distinct measures of overconfidence and the empirical context of voluntary corporate earnings forecasts, we find strong, robust evidence that firms led by overconfident CEOs are less responsive to corrective feedback in improving management forecast accuracy. We further show that this relationship is moderated by prior forecast error valence, time horizon, and managerial discretion.

Keywords: CEO overconfidence, Corrective feedback, Strategic decision making, Management forecast accuracy, Managerial cognition

Suggested Citation

Chen, Guoli and Crossland, Craig and Luo, Shuqing, Making the Same Mistake All Over Again: CEO Overconfidence and Corporate Resistance to Corrective Feedback (June 8, 2014). Strategic Management Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2447489

Guoli Chen (Contact Author)

INSEAD - Singapore ( email )

Singapore

Craig Crossland

McCombs School of Business ( email )

Austin, TX 78712
United States

Shuqing Luo

University of Hong Kong ( email )

1216 K. K. Leung Building
Hong Kong, 119245
Hong Kong
852-39171533 (Phone)

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