CEO overconfidence and corporate investment

• 成果类型: Article
• 署名作者: Malmendier, U; Tate, G
• 署名单位: Stanford University; University of Pennsylvania
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2005.00813.x
• 发表日期: 2005
• 页码: 2661-2700
• 关键词: cash flow sensitivities; STOCK-OPTIONS; AGENCY COSTS; constraints; OWNERSHIP; DIRECTORS; Managers; optimism; prices; LIFE

摘要

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.