Does Import Competition from China Discipline Overconfident CEOs in U.S. Firms?

61 Pages Posted: 28 May 2021 Last revised: 2 Mar 2022

See all articles by Sheng‐Syan Chen

Sheng‐Syan Chen

National Chengchi University

Shu-Cing Peng

National Central University - Department of Finance

Chia-Wei Yeh

National Chi Nan University - Department of Finance

Date Written: March 1, 2022

Abstract

We examine how import competition from Chinese firms influences the behavior and investment performance of overconfident CEOs in U.S. firms. We show that the rise of Chinese import competition curbs investment and improves investment value and acquisition performance for firms with overconfident CEOs. Intensified Chinese product competition also reduces incentives for these firms to expand assets, invest out of cash flows, pursue aggressive financial policies, and increase risk exposure, and enhances their incentives to buy back shares. Overall, the evidence suggests that product market competition is an effective external governance mechanism for curbing the adverse effects of managerial overconfidence.

Keywords: CEO overconfidence, Chinese import competition, Corporate investments, Investment value, Investment-cash flow sensitivity, Risk taking, Mergers and acquisitions

JEL Classification: G31, G32, G34, H32, O24

Suggested Citation

Chen, Sheng-Syan and Peng, Shucing and Yeh, Chia-Wei, Does Import Competition from China Discipline Overconfident CEOs in U.S. Firms? (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=3854562 or http://dx.doi.org/10.2139/ssrn.3854562

Sheng-Syan Chen

National Chengchi University

No. 64, Sec. 2, ZhiNan Rd., Wenshan District
Taipei 116, 116
Taiwan

Shucing Peng (Contact Author)

National Central University - Department of Finance ( email )

No. 300, Jung-da Rd.
Jung-Li
Taoyuan
Taiwan

Chia-Wei Yeh

National Chi Nan University - Department of Finance ( email )

Taiwan

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