Investment and Firm Value Under High Economic Uncertainty: The Beneficial Effect of Overconfident CEOs

60 Pages Posted: 14 Mar 2018

See all articles by Jingoo Kang

Jingoo Kang

Nanyang Technological University (NTU) - Division of Strategy, Management & Organization

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Minwook Kang

Nanyang Technological University (NTU) - Division of Economics

Jungmin Kim

School of Accounting and Finance, Hong Kong Polytechnic University

Date Written: March 14, 2018

Abstract

In this paper we investigate whether managerial overconfidence benefits shareholders when economic uncertainty is high. Consistent with managerial overconfidence mitigating the underinvestment problems exacerbated by high economic uncertainty, we find that during periods of import tariff cuts and the global financial crisis, investment and firm value are higher for firms managed by overconfident CEOs than for those managed by non-overconfident CEOs. Moreover, overconfident firms’ M&A announcements are associated with more positive abnormal returns when market uncertainty as measured by the CBOE Volatility Index is higher, and overconfident firms are more likely to undertake value-increasing M&A deals.

Keywords: Overconfidence, Risk-Aversion, Firm Value, Underinvestment, M&A, Economic Uncertainty

JEL Classification: D21, D81, G32, G34

Suggested Citation

Kang, Jingoo and Kang, Jun-Koo and Kang, Minwook and Kim, Jungmin, Investment and Firm Value Under High Economic Uncertainty: The Beneficial Effect of Overconfident CEOs (March 14, 2018). Available at SSRN: https://ssrn.com/abstract=3140209 or http://dx.doi.org/10.2139/ssrn.3140209

Jingoo Kang

Nanyang Technological University (NTU) - Division of Strategy, Management & Organization ( email )

Singapore, 639798
Singapore

Jun-Koo Kang (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Minwook Kang

Nanyang Technological University (NTU) - Division of Economics ( email )

HSS 04-53, 14 Nanyang Drive
Singapore, 639798
Singapore

Jungmin Kim

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

M757 Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
852 2766 7061 (Phone)

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