CEO overconfidence and corporate investment
By: Ulrike Malmendier, Geoffrey Tate.
Contributors: Tate, Geoffrey.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10807; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10807.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Investments.; Chief executive officers.
Description: "We argue that managerial overconfidence can account for corporate investment distortions.  Overconfident managers overestimate the returns to their investment projects and view external funds as unduly costly.  Thus, they overinvest when they have abundant internal funds, but curtail investment when they require external financing.  We test the overconfidence hypothesis, using panel data on personal portfolio and corporate investment decisions of Forbes 500 CEOs.  We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk.  We find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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