CEO Overconfidence and the COVID-19 Pandemic

Abstract

We examine the impact of CEO overconfidence on firm performance during the COVID-19 pandemic and find that firms with overconfident CEOs exhibit significantly better stock market returns, implying CEO overconfidence helps instill investor confidence during the crisis period. Utilizing a text-based measure of firm-specific exposure to the pandemic, we show that CEO overconfidence substantially mitigates the negative effect of firm exposure to the COVID-19 pandemic. We further show how overconfident CEOs instill confidence by uplifting public sentiment while withholding bad news during the pandemic. However, the impact of CEO overconfidence diminishes when firms are facing ex-ante higher levels of risk with weaker fundamentals. Overall, our finding demonstrates the bright side of CEO overconfidence at times of crises.

Keywords: CEO overconfidence, COVID-19 pandemic, firm exposure, sentiment, bad news hoarding

JEL Classification: G01, G14, M14, I18