Managerial Overconfidence and Market Feedback Effects

• 成果类型: Article
• 署名作者: Banerjee, Suman; Huang, Shiyang; Nanda, Vikram; Xiao, Steven Chong
• 署名单位: Stevens Institute of Technology; University of Hong Kong; University of Texas System; University of Texas Dallas
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4625
• 发表日期: 2023
• 页码: 7285-7305
• 关键词: market feedback; overconfidence; Fire sale; managerial attributes

摘要

We show that managerial learning from stock prices can lead to feedback loop vulnerability: corrective actions based on perceived negative market signals reduce the sensitivity of asset payoffs to stock market information. Less sensitivity discourages liquidity provision and increases the price impact of liquidity shocks. Interestingly, overconfident managers who disregard stock price information may be less vulnerable to the adverse price impact of nonfundamental liquidity shocks. Our empirical evidence strongly supports the model's underlying premises and predictions: First, investment decisions of overconfident CEOs are significantly less responsive to stock price fluctuations. Second, the price impact of liquidity shocks, for example, mutual fund fire sales, is substantially smaller for firms with overconfident CEOs.