CEO Overconfidence and Stock Price Crash Risk
University of Waterloo · City University of Hong Kong
Abstract
Abstract This study examines the association between chief executive officer ( CEO ) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value ( NPV ) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a large sample of firms for the period 1993–2010, we find that firms with overconfident CEO s have higher stock price crash risk than firms with nonoverconfident CEO s. The impact of managerial overconfidence…
Citation impact
- FWCI
- 51.38
- Percentile
- 100%
- References
- 63
Authors
3Topics & keywords
- Overconfidence effect
- Crash
- Stock price
- Stock (firearms)
- Chief executive officer
- Business
- Value (mathematics)
- Investment decisions