What is CEO Overconfidence? Evidence from Executive Assessments
38 Pages Posted: 28 Sep 2020
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What Is CEO Overconfidence? Evidence from Executive Assessments
Date Written: September 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.
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Steven Neil Kaplan (Contact Author)
University of Chicago - Booth School of Business ( email )
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Anastasia A. Zakolyukina
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773.834.4838 (Phone)
773.926.0941 (Fax)
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What is CEO Overconfidence? Evidence from Executive Assessments
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