Better Innovators or More Innovators? Managerial Overconfidence and Corporate R&D

Forthcoming at Managerial and Decision Economics

42 Pages Posted: 21 Feb 2018

See all articles by Evgenia Kuminova

Evgenia Kuminova

National Research University Higher School of Economics

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Marina Zavertiaeva

National Research University Higher School of Economics

Date Written: February 10, 2018

Abstract

The aim of this paper is to study the influence of CEOs’ overconfidence on corporate R&D. We analyze a sample of 766 firms from the UK, France, Germany, Switzerland, Italy, Spain and the Netherlands between 2008 and 2013. We use three measures of managerial overconfidence: the press coverage of CEOs, his/her age and his/her experience in the industry. Our results show that the firms run by overconfident managers actually invest more in R&D expenditures, even after controlling for country, industry and time factors. Overconfident managers not only spend more on R&D but also amplify the effect of financial determinants of R&D such as firm liquidity or profitability. Nevertheless, overconfident managers do not invest efficiently in R&D and these expenditures can negatively affect the value of the firm.

Keywords: corporate R&D, overconfidence, behavioral finance

JEL Classification: G02, O32

Suggested Citation

Kuminova, Evgenia and Lopez-Iturriaga, Felix Javier and Zavertiaeva, Marina, Better Innovators or More Innovators? Managerial Overconfidence and Corporate R&D (February 10, 2018). Forthcoming at Managerial and Decision Economics. Available at SSRN: https://ssrn.com/abstract=3121531

Evgenia Kuminova

National Research University Higher School of Economics ( email )

136, Rodionova street
25/12, Bolshaya pecherskaya street
Nizhniy Novgorod, 603155
Russia

Felix Javier Lopez-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Marina Zavertiaeva (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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