CEO Experience, Managerial Overconfidence and Investment Efficiency: Evidence from a Natural Experiment in China

57 Pages Posted: 31 Jan 2022

Abstract

We examine the impact of CEOs’ early-life and career experiences on corporate investment efficiency in the Chinese economy. We identify two extraordinary events that are likely to underpin the formative experiences of CEOs, comprising of the economic reforms which commenced in 1978, and prior career experiences of CEOs. We show that CEOs who experienced the economic reforms in their early adult life (RO-CEOs) tend to be more confident and have a tendency towards overinvestment than those who grew up during the era of the planned economy (PE-CEOs). Furthermore, CEOs who have their whole career in the business sectors (BS-CEOs) are found to exhibit greater levels of confidence and overinvestment than those with long-term public administration experience (PS-CEOs) prior to serving as corporate executives. Taking the two effects together, RE-CEOs who are also BS-CEOs tend to be more overconfident than PE-CEOs who are also PS-CEOs.

Keywords: Career experience, Early-life experience, Investment efficiency, Managerial overconfidence, Reform and opening up policy.

Suggested Citation

Hao, Ying, CEO Experience, Managerial Overconfidence and Investment Efficiency: Evidence from a Natural Experiment in China. Available at SSRN: https://ssrn.com/abstract=4021697 or http://dx.doi.org/10.2139/ssrn.4021697

Ying Hao (Contact Author)

Chongqing University ( email )

Chongqing 400044, Chongqing 400030
China

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