What Is CEO Overconfidence? Evidence from Executive Assessments

38 Pages Posted: 27 Aug 2020

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

Morten Sorensen

Dartmouth College - Tuck School of Business

Anastasia A. Zakolyukina

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2020

Abstract

We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

Suggested Citation

Kaplan, Steven Neil and Sørensen, Morten and Zakolyukina, Anastasia A., What Is CEO Overconfidence? Evidence from Executive Assessments (August 25, 2020). Chicago Booth Research Paper No. 20-22, Fama-Miller Working Paper, Tuck School of Business Working Paper No. 3680699, Available at SSRN: https://ssrn.com/abstract=3680699 or http://dx.doi.org/10.2139/ssrn.3680699

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

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University of Chicago - Polsky Center for Entrepreneurship

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Morten Sørensen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Anastasia A. Zakolyukina (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773.834.4838 (Phone)
773.926.0941 (Fax)

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