Are Overconfident CEOs Better Leaders? Evidence from Stakeholder Commitments

70 Pages Posted: 21 Aug 2015 Last revised: 4 Mar 2018

See all articles by Kenny Phua

Kenny Phua

University of Technology Sydney

T. Mandy Tham

Nanyang Technological University (NTU); Singapore Management University - Lee Kong Chian School of Business

Chishen Wei

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: December 25, 2017

Abstract

We find evidence that the leadership of overconfident chief executive officers (CEOs) induces stakeholders to take actions that contribute to the leader’s vision. By being intentionally overexposed to the idiosyncratic risk of their firms, overconfident CEOs exhibit a strong belief in their firms’ prospects. This belief attracts suppliers beyond the firm’s observable expansionary corporate activities. Overconfident CEOs induce more supplier commitments including greater relationship-specific investment and longer relationship duration. Overconfident CEOs also induce stronger labor commitments as employees exhibit lower turnover rates and greater ownership of company stock in benefit plans.

Keywords: CEO Overconfidence, Leadership, Stakeholders

JEL Classification: G32, L15

Suggested Citation

Phua, Jing Wen Kenny and Tham, Tze-Minn and Tham, Tze-Minn and Wei, Chishen, Are Overconfident CEOs Better Leaders? Evidence from Stakeholder Commitments (December 25, 2017). Journal of Financial Economics (JFE), Vol. 127, No. 3, 2018, p 519-545, Available at SSRN: https://ssrn.com/abstract=2648601 or http://dx.doi.org/10.2139/ssrn.2648601

Jing Wen Kenny Phua

University of Technology Sydney ( email )

Building 8, 14-18 Ultimo Road, Ultimo
Sydney, 2050
Australia

Tze-Minn Tham

Nanyang Technological University (NTU) ( email )

S3 B1b-61 Nanyang Avenue
Singapore, 639798
Singapore
65-67906049 (Phone)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore 178899
Singapore

Chishen Wei (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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