CEO Overconfidence and Cost Stickiness

Management Control & Accounting (2): 26-32, 2015

11 Pages Posted: 8 May 2015 Last revised: 4 Mar 2017

See all articles by Yu Flora Kuang

Yu Flora Kuang

The University of Melbourne

Asna Mohan

University of Amsterdam

Bo Qin

The University of Melbourne

Date Written: 2015

Abstract

Cost stickiness occurs when costs decrease less when sales fall than they increase when sales rise. Prior literature provides both economic and agency explanations of sticky costs. Our study tackles this cost behavior from a managerial behavioral perspective. We predict and find that cost stickiness is greater when firms are managed by overconfident CEOs. The results are consistent with the notion that overconfident CEOs are more likely to exhibit an optimistic bias and tend to be overly positive about their capability of restoring sales in case of declining sales. As a result, they retain excessive selling, general and administrative resources when sales drop, leading to greater cost stickiness.

Keywords: behavior biases, CEO overconfidence, cost stickiness

JEL Classification: M41

Suggested Citation

Kuang, Yu and Mohan, Asna and Qin, Bo, CEO Overconfidence and Cost Stickiness (2015). Management Control & Accounting (2): 26-32, 2015, Available at SSRN: https://ssrn.com/abstract=2603249

Yu Kuang

The University of Melbourne ( email )

Parkville, 3010
Australia

Asna Mohan

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

Bo Qin (Contact Author)

The University of Melbourne ( email )

Level 7, Department of Accounting
The Spot, 198 Berkeley St.
Carlton, Victoria VIC 3053
Australia
+61383449361 (Phone)

HOME PAGE: http://www.findanexpert.unimelb.edu.au/display/person743093#tab-overview

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