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Journal articles on the topic 'Overconfidence'
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1
Suryani, Arna, and Eva Herianti. "Purposive Sampling Technique and Ordinary Least Square Analysis: Investigating the Relationship Between Managerial Overconfidence, Transfer Pricing and Tax Management in Indonesian Stock Exchange-Listed Firms." International Journal of Professional Business Review 8, no. 8 (August 1, 2023): e02684. http://dx.doi.org/10.26668/businessreview/2023.v8i8.2684.
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Objective: This study investigates the relationship between managerial overconfidence, transfer pricing, and tax risk, with a focus on tax management's moderating role. Theoretical framework: Tax management is a critical concern due to its pivotal role in financing government activities. Low tax revenues in industries like manufacturing can adversely affect these activities, highlighting the need for effective tax management strategies. Managerial overconfidence can influence these strategies, potentially leading to positive and negative impacts on tax management. Method: Population of this study was manufacturing companies listed in Indonesia Stock Exchange in 2014-2019 period. The analysis made from 2015-2019, while 2014 was used as the basis to estimate the sales and asset growth as the proxy of managerial overconfidence. The sample of this study was selected using purposive sampling technique with the following criteria, manufacturing companies listed in IDX in 2014-2019 period, the company should have at least five companies in sub sector to estimate the managerial overconfidence per subsector to obtain data variation. Results and conclusion: Findings indicate a significant relationship between managerial overconfidence and tax management, with managers demonstrating overconfidence tending to employ aggressive tax management strategies, thus minimizing tax payments. Furthermore, this study reveals inconsistencies in the research surrounding overconfidence's impact on tax management, necessitating further exploration. Implications of the research: These results have implications for understanding the role of managerial traits in the decision-making process and developing effective tax management strategies to maximize government revenue. Originality/Value: The present study confirms the agency theory's efficiency perspective, stating that overconfident managers may minimize tax management practice due to risk contingency or because they consider the long-term benefit cost. Overconfident managers are viewed as more effective in taking advantage of the growth potential, allowing them to enhance the organization's performance instead of minimizing tax payment that contains risk contingency.
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Li, King-King. "Memory Recall Bias of Overconfident and Underconfident Individuals after Feedback." Games 13, no. 3 (May 23, 2022): 41. http://dx.doi.org/10.3390/g13030041.
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We experimentally investigate the memory recall bias of overconfident (underconfident) individuals after receiving feedback on their overconfidence (underconfidence). Our study differs from the literature by identifying the recall pattern conditional on subjects’ overconfidence/underconfidence. We obtain the following results. First, overconfident (underconfident) subjects exhibit overconfident (underconfident) recall despite receiving feedback on their overconfidence (underconfidence). Second, awareness of one’s overconfidence or underconfidence does not eliminate memory recall bias. Third, the primacy effect is stronger than the recency effect. Overall, our results suggest that memory recall bias is mainly due to motivated beliefs of sophisticated decision makers rather than naïve decision-making.
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Santos-Pinto, Luis, and Tiago Pires. "Overconfidence and Timing of Entry." Games 11, no. 4 (October 12, 2020): 44. http://dx.doi.org/10.3390/g11040044.
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We analyze the impact of overconfidence on the timing of entry in markets, profits, and welfare using an extension of the quantity commitment game. Players have private information about costs, one player is overconfident, and the other one rational. We find that for slight levels of overconfidence and intermediate cost asymmetries, there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of being the Stackelberg leader. Overconfidence lowers the profit of the rational player but can increase that of the overconfident player. Consumer rents increase with overconfidence while producer rents decrease which leads to an ambiguous welfare effect.
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Zhou, Hui, Lu Liu, Weifan Jiang, and Shengsheng Li. "Green Supply Chain Decisions and Revenue-Sharing Contracts under Manufacturers’ Overconfidence." Journal of Mathematics 2022 (June 13, 2022): 1–11. http://dx.doi.org/10.1155/2022/1035966.
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Overconfidence is a prevalent and potentially catastrophic behaviour in judgment and decision-making. In this paper, we define manufacturers’ overconfidence as a belief bias that they overestimate the impact of product greenness on demand and the accuracy of demand uncertainty. We build a game theory model based on overconfident beliefs, address the decisions of product greenness and price, and discuss the impact of manufacturers’ overconfidence on supply chain decisions and profits. For the adverse effects brought by overconfidence, we further investigate whether revenue-sharing contracts can coordinate green supply chains. We find three new insights. (1) Manufacturers’ overconfidence leads to higher product greenness, a higher wholesale price, and a greater retail price, but resulting in lower profits. (2) Under the cooperation based on revenue-sharing contracts, product greenness is greater, and wholesale price is lower than the case without cooperation. The greenness increases with the manufacturer’s overconfidence, but counter-intuitively, the wholesale price is not affected by overconfidence. (3) Both the overconfident manufacturer and the retailer have an incentive to reach a revenue-sharing contract. Retailers benefit from collaboration, and overconfident manufacturers assume that retailers can make more profit through revenue sharing, but this model does not exist.
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Schanbacher, Peter. "Why Uninformed Agents (Pretend to) Know More." International Journal of Strategic Decision Sciences 4, no. 3 (July 2013): 32–53. http://dx.doi.org/10.4018/jsds.2013070102.
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Many social interactions (examples are market overreactions, high rates of acquisitions, strikes, wars) are the result of agents' overconfidence. Agents are in particular overconfident for difficult tasks. This paper analyzes overconfidence in the context of a statistical estimation problem. The authors find that it is rational to (i) be overconfident and (ii) to be notably overconfident if the task is difficult. The counterintuitive finding that uninformed agents which should be the least confident ones show the highest degree of overconfidence can be explained as a rational behavior.
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Lin, Mei-Chen. "Returns and Investor Behavior in Taiwan: Does Overconfidence Explain this Relationship?" Review of Pacific Basin Financial Markets and Policies 08, no. 03 (September 2005): 405–46. http://dx.doi.org/10.1142/s0219091505000476.
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This paper examines whether overconfidence can explain the relationship between performance and behavior of investors in Taiwan. Different from prior research that used a specific sample of individuals trading records, this work focuses on aggregate investor behavior to know whether overconfidence is a market-wide phenomenon. It is found that overconfident investors will trade more aggressively, and the excessive trading of overconfident investors results in the observed excessive market volatility. However, overconfidence effect exists only following bull markets. After a period of stock gains, overconfident traders tend to title their investment toward smaller-cap and growth stocks, consistent with the prediction of overconfident hypothesis that as investors become overconfident, they underestimate risk and thereby trade in riskier stocks.
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Liu, Jian, Hui Zhou, Miyu Wan, and Lu Liu. "How Does Overconfidence Affect Decision Making of the Green Product Manufacturer?" Mathematical Problems in Engineering 2019 (April 17, 2019): 1–14. http://dx.doi.org/10.1155/2019/5936940.
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Overconfidence is a universal and prevalent cognitive bias affecting decision making in operation management. In this paper, overconfidence is defined as a cognitive bias in which decision makers overestimate the accuracy of demand forecasting or (and) the demand itself. We call these two behaviors overprecision and overestimation, respectively. In order to explore how overconfidence affects decision making of the green product manufacturer, we build the demand function based on the manufacturer’s overconfidence and establish a newsboy-based model. Then the influence of overconfidence on product greenness, output, and profit is mainly discussed. We have several new sights as follows. First, overconfidence makes the manufacturer produce greener products than the rational manufacturer, and overestimation results in a higher greenness deviation than overprecision. Second, the influence of overconfidence on the output of green products is quite different from that of nongreen products. Specifically speaking, overestimation makes the manufacturer produce more products than the rational manufacturer, so do the overprecision manufacturer and the dual-overconfident manufacturer under the low-profit condition. But in high-profit condition, when greening investment factor is low and (or) consumers are sensitive enough to greenness, the overprecision manufacturer produces more than the rational manufacturer; when the level of overestimation exceeds a threshold, output of the dual-overconfident is greater than that of the rational manufacturer. Third, overconfidence makes the real profit of the manufacturer less than optimal profit of the rational manufacturer. There is a positive cross-effect of overprecision and overestimation in real profit of the dual-overconfident manufacturer. That is, to some extent, one kind of overconfidence can offset the decline in profit caused by the other kind of overconfidence.
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Malmendier, Ulrike, and Timothy Taylor. "On the Verges of Overconfidence." Journal of Economic Perspectives 29, no. 4 (November 1, 2015): 3–8. http://dx.doi.org/10.1257/jep.29.4.3.
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This symposium provides several examples of overconfidence in certain economic contexts. Michael Grubb looks at “Overconfident Consumers in the Marketplace.” Ulrike Malmendier and Geoffrey Tate consider “Behavioral CEOs: The Role of Managerial Overconfidence.” Kent Daniel and David Hirshleifer discuss “Overconfident Investors, Predictable Returns, and Excessive Trading.” A number of insights and lessons emerge for our understanding of markets, public policy, and welfare. How do firms take advantage of consumer overconfidence? Might government attempts to rule out such practices end up providing benefits to some consumers but imposing costs on others? How are empirical measures of CEO overconfidence related to investment and the capital structure of firms? Can overconfidence among at least some investors help to explain prominent anomalies in stock markets like high levels of trading volume and certain predictable patterns in stock market returns?
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Lamptey, Jeff, Asri Bin Marsidi, Bilyaminu Usman, and Ashemi Baba Ali. "The Overconfidence Behavioral Bias in Working Capital Management and Performance of Small and Medium Enterprise in Ghana: A Conceptual Paper." Malaysian Journal of Social Sciences and Humanities (MJSSH) 5, no. 7 (July 10, 2020): 124–29. http://dx.doi.org/10.47405/mjssh.v5i7.438.
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The concept of overconfidence is well understood in the financial market and corporate decision as individual investors and managers of large corporations prone to overconfident bias. This paper is the first to conceptualize overconfidence bias in working capital management and performance of Small and medium enterprises by employing qualitative case study inquiry to gain insight and SME managers overconfident behavior. This paper argues that overconfidence bias can distort working capital investment with the possibility of overinvestment working capital inventory if SME managers have enough internal equity in anticipation of higher performance.
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Kwon, Young Min, and Jin Wook Kim. "CEO Overconfidence and Voluntary Management Forecasts." Korean Accounting Information Association 41, no. 2 (June 30, 2023): 57–83. http://dx.doi.org/10.29189/kaiaair.41.2.3.
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[Purpose]Managers’ personal characteristics play an important role in corporate decision－making. Overconfidence, one of the personal characteristics of managers, refers to the tendency to overestimate managers’ own abilities and the probability of positive events happening to them. Therefore, overconfident CEOs are likely to overestimate the returns to their investment projects and to misperceive a negative net present value project as value creating. This study, therefore, examines whether overconfident CEOs are more likely to issue a management forecast. We also investigate whether CEO overconfident is related to the accuracy of forecast.
[Methodology]Our sample consists of 6,310 firm－year observations of firms listed on the Korean Composite Stock Price Index (KOSPI) market of the Korea Exchange (KRX) for the period from 2003 to 2015. We measure CEO overconfidence using empirical measure that has been developed by Ahmed and Duellman (2013) and Schrand and Zechman (2012).
[Findings]We find that CEO overconfidence is positively associated with the likelihood of issuing a management forecast. In addition, we find that overconfidence is negatively related to the accuracy of management forecasts. These findings imply that overconfident CEOs are more likely to issue a management forecast and that their forecasts are less accurate.
[Implications]Our study contributes to our understanding of why some managers voluntarily issue forecasts while others do not. The result of this study implies that overconfidence, among the personal characteristics of managers, affects the motivation for voluntary management forecasts. In addition, the result that overconfident CEOs issue less accurate forecasts supports prior studies that CEO overconfidence is a potential factor that can hinder the optimal corporate decision－making.
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Mundi, Hardeep Singh, and Parmjit Kaur. "Impact of CEO Overconfidence on Firm Performance: An Evidence from S&P BSE 200." Vision: The Journal of Business Perspective 23, no. 3 (July 18, 2019): 234–43. http://dx.doi.org/10.1177/0972262919850935.
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The current research article considers the impact of CEO overconfidence on firm performance for S&P BSE 200 firms. The CEO overconfidence is measured using revealed beliefs (holder 67, long holder and net buyer), press coverage and forecasting error proxies of CEO overconfidence. CEO Overconfidence measures are constructed as per the methodology of Malmendier and Tate (2005b, 2008). Firm performance is measured using Tobin’s Q and return on assets. The data are collected from the Centre for Monitoring Indian Economy (CMIE) prowess, S&P Capital IQ and the annual reports of the sample firms over a period of 15 years starting from 1 April 2000 to 31 March 2015. Regression results for each of the proxy of CEO overconfidence with the proxies of firm performance indicate that large Indian firms with overconfident CEOs enjoy a higher return on assets and Tobin’s Q as compared to the full sample firms. Overconfident CEOs consider themselves better-than-average, are involved with over-investment and show superior performance for the firm. The overconfident CEOs increase firm performance by following optimal levels of investments in the firm.
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Wong, Ying-Jiuan, Cheng-Yu Lee, and Shao-Chi Chang. "CEO Overconfidence and Ambidextrous Innovation." Journal of Leadership & Organizational Studies 24, no. 3 (February 14, 2017): 414–30. http://dx.doi.org/10.1177/1548051817692329.
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While prior research has focused on the effect of CEO overconfidence on innovation, few studies have been conducted to reveal how and whether an overconfident CEO affects ambidextrous innovation, which means the simultaneous and balanced pursuit of both exploratory and exploitative innovation. By observing firms’ patenting behavior, we investigate the effect of CEOs’ psychological attribute of overconfidence on innovation ambidexterity. In addition, we examine how a firm’s governance system moderates the relationship between CEO overconfidence and ambidextrous innovation. The results show that overconfident CEOs are more apt to create or magnify an imbalance in innovation ambidexterity. Furthermore, the results regarding the moderating effects of governance and monitoring mechanisms indicate that an independent board and dedicated institutional ownership mitigate the positive relationship between CEO overconfidence and a firm’s ambidextrous imbalance, while transient institutional ownership enhances this relationship. We also find that analyst following does not effectively monitor an overconfident CEO’s tendency toward an ambidextrous imbalance.
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Bukalska, Elżbieta. "Are companies managed by overconfident CEO financially constraint? Investment-cash flow sensitivity approach." Equilibrium 15, no. 1 (March 31, 2020): 107–31. http://dx.doi.org/10.24136/eq.2020.006.
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Research background: Overconfidence is one of the biases and fallacies that affect a cognitive process. Indeed, overconfidence has some serious consequences even in corporate finance. The literature is not consistent as for the impact of overconfidence on investment and financing decisions. Additionally, we include the issue of financial constraints to our analysis as investment-cash flow sensitivity (ICFS) is perceived as the measure of financial constraints.
Purpose of the article: The aim of this paper is to test investment-cash flow sensitivity and financial constraints under managerial overconfidence. We think that companies managed by overconfident managers show a higher relation between cash flows and investment and demonstrate bigger financial constraints.
Methods: In this paper, we test investment-cash flow sensitivity and financial constraints under CEO overconfidence among panel data of Polish private firms. We collect the unique sample of 145 non-listed companies by surveying the CEOs on their overconfidence. We collect the financial data of surveyed companies covering the 2010–2016 period. Total number of observations is 1015.
Findings & Value added: First, we find a positive and higher relation between the investment-cash flow sensitivity for companies managed by overconfident managers which is in line with recent research. As for the financial constraints we find lower level of financial constraints among the companies managed by overconfident man-agers. This might be evidence that despite having lower financial constraints the companies managed by overconfident managers intentionally choose internal funds as the main source of financing and refrain from using external funds. To the best of our knowledge, this paper is the first empirical study for Polish companies on the relation between CEO overconfidence and financial decisions.
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Cheng, Bayi, Yuqi Wang, Xinyan Shi, and Mi Zhou. "Fashion retail competition on product greenness with overconfidence." RAIRO - Operations Research 56, no. 1 (January 2022): 101–14. http://dx.doi.org/10.1051/ro/2021178.
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In this paper, we study the impacts of overconfidence in a competitive retailer setting of green fashion. We model a green fashion supply chain comprising one unbiased manufacturer and two biased retailers, to explore how overconfidence affects greenness level of fashion products and expected profit of retailers. An overconfident retailer has a cognitive bias in which it believes consumers are more sensitive to greenness of fashion products than it really is. Our findings show that the competition between two retailers discourages greenness level of fashion products, while overconfidence can provide a counterbalance to the negative impact caused by competition. We also find, a retailer’s overconfidence is not only conducive to the greenness level of its own fashion products, but also can benefit to its rival. Moreover, it shows a low level of overconfidence can be a comparative advantage of the retailer’s profit. Even though one of the retailers is unbiased and has an advantage of information, it can still earn less than its overconfident rival.
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Mushinada, Venkata Narasimha Chary, and Venkata Subrahmanya Sarma Veluri. "Self-attribution, Overconfidence and Dynamic Market Volatility in Indian Stock Market." Global Business Review 21, no. 4 (July 3, 2018): 970–89. http://dx.doi.org/10.1177/0972150918779288.
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The article provides an empirical evaluation of self-attribution, overconfidence bias and dynamic market volatility at Bombay Stock Exchange (BSE) across various market capitalizations. First, the investors’ reaction to market gain when they make right and wrong forecasts is studied to understand whether self-attribution bias causes investors’ overconfidence. It is found that when investors make right forecasts of future returns, they become overconfident and trade more in subsequent time periods. Next, the relation between excessive trading volume of overconfident investors and excessive prices volatility is studied. The trading volume is decomposed into a first variable related to overconfidence and a second variable unrelated to investors’ overconfidence. During pre-crisis period, the analysis of small stocks shows that conditional volatility is positively related to trading volume caused by overconfidence. During post-crisis period, the analysis shows that the under-confident investors became very pessimistic in small stocks and tend to overweight the future volatility. Whereas, the analysis of large stocks indicates that the overconfidence component of trading volume is positively correlated with the market volatility. Collectively, the empirical results provide strong statistical support to the presence of self-attribution and overconfidence bias explaining a large part of excessive and asymmetric volatility in Indian stock market.
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Zhao, Qiuhong, and Dave A. Ziebart. "Consequences of CEO Overconfidence." Accounting and Finance Research 6, no. 2 (March 29, 2017): 94. http://dx.doi.org/10.5430/afr.v6n2p94.
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We test the impact of CEO overconfidence on the cost of debt and the impact of SOX on overconfidence via CEO selection. Our CEO overconfidence measure is based on the degree of optimism in management earnings forecasts, and the measure for the cost of debt is bond yield spreads. Our evidence supports that the market discounts CEO overconfidence by increasing the cost of borrowing. Moreover, we find that the financial market also incorporates past CEO overconfidence into bond pricing. We document that the board prefers to appoint a more rational CEO over an overconfident CEO. Our findings are consistent with Banerjee et al.’s (2015) argument that an independent board mitigates the costs of CEO overconfidence in terms of investment and risk exposure.
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Mushinada, Venkata Narasimha Chary, and Venkata Subrahmanya Sarma Veluri. "Investors overconfidence behaviour at Bombay Stock Exchange." International Journal of Managerial Finance 14, no. 5 (October 8, 2018): 613–32. http://dx.doi.org/10.1108/ijmf-05-2017-0093.
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PurposeThe purpose of the paper is to empirically test the overconfidence hypothesis at Bombay Stock Exchange (BSE).Design/methodology/approachThe study applies bivariate vector autoregression to perform the impulse-response analysis and EGARCH models to understand whether there is self-attribution bias and overconfidence behavior among the investors.FindingsThe study shows the empirical evidence in support of overconfidence hypothesis. The results show that the overconfident investors overreact to private information and underreact to the public information. Based on EGARCH specifications, it is observed that self-attribution bias, conditioned by right forecasts, increases investors’ overconfidence and the trading volume. Finally, the analysis of the relation between return volatility and trading volume shows that the excessive trading of overconfident investors makes a contribution to the observed excessive volatility.Research limitations/implicationsThe study focused on self-attribution and overconfidence biases using monthly data. Further studies can be encouraged to test the proposed hypotheses on daily data and also other behavioral biases.Practical implicationsInsights from the study suggest that the investors should perform a post-analysis of each investment so that they become aware of past behavioral mistakes and stop continuing the same. This might help investors to minimize the negative impact of self-attribution and overconfidence on their expected utility.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the investors’ overconfidence behavior at market-level data in BSE, India.
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Zhou, Hui. "Can cost sharing contracts coordinate green supply chains based on manufacturers’ overconfidence." E3S Web of Conferences 236 (2021): 04014. http://dx.doi.org/10.1051/e3sconf/202123604014.
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Cost sharing contracts is one of the most common contracts to coordinate green supply chains. In this paper, we examine whether it can coordinate green supply chains in the set up of overconfidence. We assume that the manufacturer is overconfident and the retailer is rational. The manufacturer overestimates consumers’ sensitivity to product greenness and accurately estimates the uncertainty of demand. The overconfident manufacturer and the rational retailer cooperate through cost sharing contracts. Then, we construct a game theoretical model to analyze the impact of manufacturers’ overconfident on product greenness, pricing, profit and supply chain cooperation. At last, a numerical experimentation is presented. We find that, (1) the product greenness, wholesale price and retail price increase with the manufacturer’s overconfidence as well as the retailer’s cost sharing proportion. (2) no matter how much the cost sharing proportion is, the profit of manufacturers and retailers decreases with the manufacturer’s overconfidence level. (3) cost sharing contracts can achieve the green supply chain coordination in rational setting. But under manufacturers’ overconfidence, it cannot.
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Park, Kyung-Hee, Jinho Byun, and Paul Moon Sub Choi. "Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints." Sustainability 12, no. 1 (December 19, 2019): 61. http://dx.doi.org/10.3390/su12010061.
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Managerial overconfidence refers to managers’ cognitive bias, according to which they demonstrate unwarranted belief in their own judgments and capabilities. This study provides a new measurement of CEO overconfidence through textual analysis of management discussion and analysis (MD&A) in 10-K documents by making use of the US Securities and Exchange Commission (SEC) EDGAR database. Overconfidence was obtained from “optimism” using the Diction program. From a sample of 19,367 US firms from 1994 to 2016, we found that CEO overconfidence was negatively related to corporate social responsibility (CSR) activities. Since overconfident CEOs are likely to consider CSR activities less important than their own ability, they seem to reduce CSR activities. Also, CSR activities initiated by overconfident CEOs were negatively related to firms’ long-term performance. However, CSR activities led to positive long-term performance in firms that were financially constrained. Our findings show that CSR activities undertaken as a result of CEO overconfidence by financially unconstrained firms could be harmful to shareholder value in the long term.
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Johnson, Dominic D. P., Rose McDermott, Emily S. Barrett, Jonathan Cowden, Richard Wrangham, Matthew H. McIntyre, and Stephen Peter Rosen. "Overconfidence in wargames: experimental evidence on expectations, aggression, gender and testosterone." Proceedings of the Royal Society B: Biological Sciences 273, no. 1600 (June 20, 2006): 2513–20. http://dx.doi.org/10.1098/rspb.2006.3606.
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Summary Overconfidence has long been noted by historians and political scientists as a major cause of war. However, the origins of such overconfidence, and sources of variation, remain poorly understood. Mounting empirical studies now show that mentally healthy people tend to exhibit psychological biases that encourage optimism, collectively known as ‘positive illusions’. Positive illusions are thought to have been adaptive in our evolutionary past because they served to cope with adversity, harden resolve, or bluff opponents. Today, however, positive illusions may contribute to costly conflicts and wars. Testosterone has been proposed as a proximate mediator of positive illusions, given its role in promoting dominance and challenge behaviour, particularly in men. To date, no studies have attempted to link overconfidence, decisions about war, gender, and testosterone. Here we report that, in experimental wargames: (i) people are overconfident about their expectations of success; (ii) those who are more overconfident are more likely to attack; (iii) overconfidence and attacks are more pronounced among males than females; and (iv) testosterone is related to expectations of success, but not within gender, so its influence on overconfidence cannot be distinguished from any other gender specific factor. Overall, these results constitute the first empirical support of recent theoretical work linking overconfidence and war.
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Kegui, Chen, Wang Xinyu, Huang Min, and Song Xuefeng. "Price strategies and salesforce compensation design with overconfident sales agent." RAIRO - Operations Research 54, no. 5 (June 26, 2020): 1347–68. http://dx.doi.org/10.1051/ro/2019048.
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Salesforce compensation and pricing decisions have invoked the interest of several academicians and practitioners for a long period of time. However, dilemma of whether the pricing decisions should be made by the firm or delegated to the sales agent, especially the overconfident agent, is still unexplored. This study tries to investigate the problems associated with this dilemma by conducting a thorough study of the scenario, it studies a supply chain that the rational manufacturer hiring an overconfident sales agent to sell its products, the agent might overestimate the demand, or underestimate the variability of the demand. These behaviors are characterized as ability-based and precision-based overconfidence respectively. The models are designed for centralized pricing and delegated pricing settings, and the sensitivity analysis are conducted. Moreover, comparative studies have also been conducted to highlight the impacts of the two types of overconfidence on the compensation decisions under different pricing strategies. It was found out that, the manufacturer favors centralized pricing, while the sales agent prefers delegated pricing. The final decisions of both sides deviate considerably from the rational scenario, overconfidence prompts the agent to exert more efforts, which ultimately enhances manufacturer’s profits that the manufacturer should hire a more overconfident agent, while not guaranteeing a higher commission rate. Overconfidence leads to the decline of the agent’s actual utility, and the loss amount increases with the overconfidence level. The influences of the both types of overconfidence are substitutable. Managerial insights are also provided for various scenarios and propositions along with numerical illustration of the finding.
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Liang, Quanxi, Leng Ling, Jingjing Tang, Haijian Zeng, and Mingming Zhuang. "Managerial overconfidence, firm transparency, and stock price crash risk." China Finance Review International 10, no. 3 (November 13, 2019): 271–96. http://dx.doi.org/10.1108/cfri-01-2019-0007.
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Purpose The purpose of this paper is to empirically analyze whether and how managerial overconfidence affects stock price crash risk. Design/methodology/approach Based on a large sample of Chinese non-state-owned firms from 2000 to 2012, this study employs methods including multiple linear regression model, Heckman two-stage treatment effect procedure, firm fixed effects model and event study to clarify the causality relationship between managerial overconfidence and crash risk. Findings The authors find that firms with overconfident managers (chief executive officer or board chairs) are more likely to experience future stock price crashes than firms with non-overconfident managers. The effect of overconfidence on crash risk is more pronounced for firms with low transparency, suggesting that firm opacity facilitates overconfident managers’ bad news hoarding activities, which, in turn, increases stock price crash risk. The authors also show evidence that overconfident managers tend to disclose good news in a timely manner. Originality/value The authors add to the growing literature on stock price crash risk. Specifically, the authors find that the cognitive bias of board chair plays an important role in the bad news hoarding activities, thereby increasing the likelihood of stock price crash. This study also contributes to the literature that addresses the effects of managerial overconfidence on corporate finance issues.
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Wang, Xiao Wei. "The Effects of Overconfidence in Supply Chain Systems." Applied Mechanics and Materials 543-547 (March 2014): 4218–22. http://dx.doi.org/10.4028/www.scientific.net/amm.543-547.4218.
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Based on the past research on overconfidence, we present a model of an overconfident retailer who has biased belief on variance of demand. We investigate the deviation on orders and profits between him and the rational one, and then prove that what the relationship between profits and overconfidence level is. Because the overconfident retailer's profits are always less than the rational one's, we discuss how supplier could take contractual mechanisms to achieve the maximize profits of supply chain, when confronted with an overconfident retailer.
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Inaishi, Ryota, Kaoru Toya, Fei Zhai, and Eisuke Kita. "Effect of Overconfident Investor Behavior to Stock Market." Journal of Advanced Computational Intelligence and Intelligent Informatics 14, no. 6 (September 20, 2010): 661–68. http://dx.doi.org/10.20965/jaciii.2010.p0661.
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Behavioral finance theory has been presented to explain the phenomena not explainable by conventional finance theory based on efficient market hypothesis from the investor psychology. We focused on overconfidence – an important psychological bias –, and analyzed the effect of overconfident investor behavior in stock market using multiagent simulation. We found that, based on the increase in overconfident market investors, market dealing increases and rising trends occur more often. An analysis of the relationship between overconfidence and rising trends shows that rising trends make investors even more overconfident.
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CHARBTI, SANA, FABRICE HERVÉ, and EVELYNE POINCELOT. "Dividend Policy and Managerial Overconfidence: French Evidence." Bankers, Markets & Investors 164 (April 22, 2021): 24–38. http://dx.doi.org/10.54695/bmi.164.4762.
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This paper examines the impact of managerial overconfidence on dividend policy.The literature has identified two strands of reasoning. Deshmukh et al. (2013) argue that overconfident managers with relatively high investment needs perceive external funds as more costly than internal financing. This leads them to pay out lower dividends. Conversely, Wu and Liu (2011) claim that overconfident CEOs expect higher future cash flows and are prone to pay out higher dividends. We study a sample of 120 French firms for the period 2000–2015. Our results provide evidence that CEOs’ overconfidence plays a decisive role in explaining the dividend policy of French firms. Managerial overconfidence exerts a positive effect on firms’ dividend payouts.
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Bhaskar, V., and Caroline Thomas. "The Culture of Overconfidence." American Economic Review: Insights 1, no. 1 (June 1, 2019): 95–110. http://dx.doi.org/10.1257/aeri.20180200.
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Perceptions of overconfidence can exacerbate the tendency of reputationally concerned leaders to continue bad projects. Reputation concerns alone induce a bias toward inefficient continuation in a leader receiving information privately. When she is overconfident— or holds a more favorable prior than observers—this tendency is aggravated. This remains true even when she is not really overconfident, but merely perceived to be so. Higher-order beliefs regarding overconfidence induce inefficient equilibrium selection even when there is “almost common knowledge” that the leader is not over-confident. This provides a novel perspective on how culture selects among equilibria: via higher-order beliefs. (JEL D82, D83, Z13)
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Yilmaz, Neslihan. "The Effect of CEO Overconfidence on Product Market Performance." International Journal of Applied Behavioral Economics 4, no. 1 (January 2015): 1–19. http://dx.doi.org/10.4018/ijabe.2015010101.
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This paper provides empirical evidence that CEO overconfidence can play a role on firm product market performance. Some studies provide empirical evidence that irrational managers may engage in actions that can be detrimental to firm value while others suggest that an overconfident manager can increase firm value. This work analyzes the relationship between CEO overconfidence and within-industry sales performance of the firm, and find that higher overconfidence levels are associated with better product market performance.
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Meng, Xingchen. "CEO Overconfidence and Corporate Overseas M&A: The Case of Techcent Environment Company." Asian Trade Association 10, no. 1 (June 30, 2023): 43–53. http://dx.doi.org/10.22447/jatb.10.1.202306.43.
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Purpose – In recent years, overseas M&As have become an important way for enterprises to invest and expand. Yet, most overseas deals are not successful. Behavioral finance research attributes the failure of overseas M&A to the irrational cognition of corporate decision-makers: that is, overconfidence. This study focuses on exploring the relationship between CEO overconfidence and overseas M&A, and clarifying the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Design/Methodology/Approach – First, based on the hubris hypothesis, this study reviews the literature on CEO overconfidence and overseas M&A. Second, this study uses the case analysis method, taking Techcent Environmental Co., Ltd., as an example, to study the impact of CEO overconfidence on the motivation, payment method, and corporate performance of overseas M&A. Findings – Overconfident CEOs tend to make enterprises carry out overseas M&As and use cash in the settlement. At the same time, overconfident CEO overseas mergers and acquisitions have a negative impact on both short-term and long-term corporate performance. Research Implications – This study expands the scope of case studies on the theory of executive overconfidence in behavioral finance, verifies the hubris hypothesis, enriches the case study literature on CEO confidence in behavioral finance, and provides reference for the management and overseas M&As of corporate executives.
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X. H. Bao, Helen, and Steven Haotong Li. "Investor Overconfidence and Trading Activity in the Asia Pacific REIT Markets." Journal of Risk and Financial Management 13, no. 10 (September 29, 2020): 232. http://dx.doi.org/10.3390/jrfm13100232.
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Overconfidence is one of the most robust behavioral anomalies in financial markets. By attributing investment gains to their ability, investors become overconfident and trade aggressively in subsequent periods. Evidence from stock markets shows that overconfidence leads to excessive trading and, subsequently, inferior investment performance. However, studies on overconfidence effect are lacking in the real estate sector, which is particularly true for Asia Pacific real estate investment trust (REIT) markets. Thus, this study examines the overconfidence effect in six Asia Pacific REIT markets, namely, Australia, Hong Kong, Japan, Singapore, South Korea, and Taiwan. The study finds that the overconfidence effect is more conspicuous during market boom periods or in inefficient market conditions. In addition, simulation analysis demonstrates that overconfidence could lead to rather large volumes of excessive trading activities in certain markets. Findings are robust across the alternative measures of control variables. Moreover, the policy implications of the research are also discussed.
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Heller, Yuval. "Overconfidence and Diversification." American Economic Journal: Microeconomics 6, no. 1 (February 1, 2014): 134–53. http://dx.doi.org/10.1257/mic.6.1.134.
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Experimental evidence suggests that people tend to be overconfident in the sense that they overestimate the accuracy of their private information. In this paper, we show that risk-averse principals might prefer overconfident agents in various strategic interactions because these agents help diversify the aggregate risk. This may help understanding why successful analysts and entrepreneurs tend to be overconfident. In addition, a different interpretation of the model presents a novel evolutionary foundation for overconfidence, and explains various stylized facts about this bias. (JEL D81, D82)
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Li, I.-Cheng, and Jung-Hua Hung. "The Moderating Effects of Family Control on the Relation between Managerial Overconfidence and Earnings Management." Review of Pacific Basin Financial Markets and Policies 16, no. 02 (May 20, 2013): 1350010. http://dx.doi.org/10.1142/s0219091513500100.
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This study investigates the relation between managerial overconfidence and earnings management and whether this relation is moderated by family control. Using a sample of Taiwan-listed firms, we estimate managerial overconfidence from manager dealings and determine the following: First, overconfident managers are more likely to engage in earnings management behaviors; second, family control negatively moderates the positive relation between managerial overconfidence and earnings management; and third, the negative moderating effects of family control primarily result from family chief executive officers.
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Meng, Zini. "Psychological Bias of Chinese Investors Due to Overconfidence- Take “Tik-Tok” for Example." BCP Business & Management 32 (November 22, 2022): 220–22. http://dx.doi.org/10.54691/bcpbm.v32i.2892.
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In many cases we’ve found that when a company CEO is overconfident, it has a major impact on decision making, and often puts a company’s future at risk. Through a modern case study in such overconfidence, I examine the causes of psychological overconfidence in its various forms The case of Tik-Tok allows us to look at the moderating impact of overconfidence bias and decision-making by investors. We learn that prudence and indeed fear of making mistakes are reasons for successful investment.
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Chang, Li, and Tsui Jung Lin. "The Association among CEO Overconfidence, Ownership Structure and Financial Performance." European Journal of Business and Management Research 7, no. 2 (March 8, 2022): 37–44. http://dx.doi.org/10.24018/ejbmr.2022.7.2.1160.
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This paper explores the relationship among ownership type, managerial overconfidence, and corporate performance. In addition, the purposes of this research are to examine the structure of ownership and CEO overconfidence of family businesses and investigates whether it influences the performance. This study uses a panel estimation to exploit both the cross-section and time–series nature of the data; our sample includes firms listed on Taiwan’s stock market during the period of 2009 to 2018, totally 6,612. These results show that (1) financial performance of family business is worse than that of non-family business. It means that family interests of family business are higher than those of company which lead to exploited; (2) CEO overconfidence of family business is lower than that of non-family business. Family supervision and control can lead to family business managers who depress his (her) own overconfident tendency; (3) the overconfident CEO has poor impact on corporate performance. This means that manager’s overconfident expectations will damage company’s benefits; and (4) after the overconfident CEO joins family business, corporate performance will be increased. It means overconfident manager can compensate for family’s conservativeness and lead to increased corporate performance.
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Zhang, Yan-liang, and Zi-wei Yang. "Research on the Relationship between CEO's Overconfidence and Corporate Investment Financing Behavior." Journal of Modeling and Optimization 10, no. 1 (June 30, 2018): 8. http://dx.doi.org/10.32732/jmo.2018.10.1.8.
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At present, the classic corporate finance theory is challenged by various behavioral visions of corporate leaders in the actual decision-making of corporate finance. From the perspective of behavioral finance, this paper selects the data of A-share listed companies in China's Shanghai Stock Exchange and Shenzhen Stock Exchange in 2003-2016 to study the relationship between CEO's overconfidence and business operations. The study found that: Overconfidence CEOs will tend to increase the level of leverage, increase the number of loans, especially to increase the number of short-term loans; When the economic growth is faster, the listed company's CEO is more inclined to overconfidence; However, unlike the results of foreign studies, overconfident companies did not replace CEOs more frequently than non-overconfident companies, and did not increase the probability of bankruptcy. Finally, the CEO of a state-owned company does not appear to be more overconfident than the CEO of a private company.
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Li, Ying, and Guihang Guo. "Study on the Perishable Product’s Pricing Decision With Overconfident Consumers in the Dual-Channel Setting." International Journal of Business Administration 11, no. 5 (August 24, 2020): 20. http://dx.doi.org/10.5430/ijba.v11n5p20.
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With the development of internet, the online shopping mode has become more popular among consumers, and the online direct selling becomes more common. Besides buying products from traditional stores, consumers could get the product directly from the manufacturer online. In the dual channel setting, the competition becomes fiercer. Retailer should focus more on the price decision and take suitable pricing strategy to increase its profit. In this paper, consumer’s overconfidence behavior is incorporated into perishable products’ pricing decision in the partially integrated dual channel setting. Through the analysis of consumer’s decision making process, this paper constructs the model for partially integrated manufacturer and retailer under the mean and precision overconfidence scenarios, conducts the optimal analysis, and analyzes the effect of consumer’s overconfidence level on the optimal wholesale, retail and direct selling prices. We conclude that, no matter consumers are mean-overconfident or precision-overconfident; there are optimal wholesale price, direct sale price and retail price. Business enterprises should enhance their information collection capability and adopt some marketing measures to influence consumer’s overconfidence level in order to increase the sales revenue.
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Mahajan, Jayashree. "The Overconfidence Effect in Marketing Management Predictions." Journal of Marketing Research 29, no. 3 (August 1992): 329–42. http://dx.doi.org/10.1177/002224379202900304.
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Estimating the likelihood of future events is a critical aspect of making a variety of marketing management decisions. Prior research has shown very robust patterns in the probability assessments of individuals, the predominant finding being that individuals are overconfident. The author theoretically investigates why overconfidence occurs by drawing on prior work on how cognitions are used in decisions. Specifically, the effects of evaluative feedback, counterfactual reasoning, and expertise are explored in two experiments in the context of making strategic marketing predictions. The findings provide some novel insights on overconfidence and accuracy of predictions. They suggest that (1) “humbling” feedback increases accuracy and lowers overconfidence, (2) overconfidence from being “blind sided” can be reduced by counterfactual reasoning, and (3) “richness” of experts’ mental representations results in higher overconfidence. The author concludes with a discussion of these findings and managerial implications.
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Lee, Jaehong, and Eunsoo Kim. "Would Overconfident CEOs Engage More in Environment, Social, and Governance Investments? With a Focus on Female Representation on Boards." Sustainability 13, no. 6 (March 18, 2021): 3373. http://dx.doi.org/10.3390/su13063373.
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This study examines the relationship between CEO overconfidence, environment, social, and governance investments, and firm value. Drawing on insights from upper echelon and agency theory, greater female representation on boards is expected to act as an independent monitoring mechanism to control and reconcile CEO overconfidence which leads to enhancement of corporate value induced by environment, social, and governance investments. Empirical evidence in this study finds that, on average, overconfident managers tend to engage in ESG investments in South Korea. Furthermore, in firms with high environment, social, and governance investments, the negative association between CEO overconfidence and firm value is mitigated, showing that environment, social, and governance investments are effective moderators in controlling and constraining managerial overconfidence. Finally, we find that the joint impact of CEO overconfidence and environment, social, and governance investments on corporate value is distinctive in firms with female board representation. Taken together, we find that negative effects associated with CEO overconfidence can be alleviated by the role of female leadership that links corporate environment, social, and governance investments to firm value.
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Abdalkrim, Gaafar Mohamed. "CEO Compensation, Managerial Overconfidence and Performance of Sharia Compliant Firms and Non-Sharia Compliant Firms: Evidence from Listed GCC Firms." Archives of Business Research 9, no. 10 (October 29, 2021): 159–77. http://dx.doi.org/10.14738/abr.910.11032.
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Background: The positive relationship between managerial overconfidence and performance implies that overconfident managers overestimate their ability to create value and improve their firm’s performance, which also lead to overestimate their own firms returns by taking over other firms. Purpose: The study examines relationship between managerial overconfidence, CEO compensation, and performance of sharia compliant firms and non-sharia compliant firms for 207 GCC listed firms from 2010 to 2014. Methodology: The study sample comprised of 207 firms for the main empirical analysis. The data used in this study were collected from GCC stock exchange data-base and firms financial report provided by website argaam.com between 2010 and 2018. Findings: The study found that managerial overconfidence is positively and significantly related to firm performance. CEO compensation and managerial overconfidence is also associated positively with sharia–compliant firms’ performance. The findings supported first hypothesis that managerial overconfidence leads to better firms’ performance. Originality: The study has revealed a positive impact of sharia compliant firms’ managerial overconfidence on firm performance. Furthermore, the effect of CEO compensation is favorable in sharia compliant firms.
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Rayfield, Blake, and Omer Unsal. "Do overconfident CEOs stay out of trouble? Evidence from employee litigations." Review of Behavioral Finance 11, no. 4 (November 11, 2019): 441–67. http://dx.doi.org/10.1108/rbf-03-2018-0027.
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Purpose The authors study the relationship between CEO overconfidence and litigation risk by examining employee-level lawsuit data. The purpose of this paper is to better understand the executive characteristics that potentially affect the likelihood of employee litigations. Design/methodology/approach The authors employ a unique data set of employee lawsuits from the National Labor Relations Board – “Disposition of Unfair Labor Practice Charges” – which includes complaints, litigations and decisions. The data spans the years 2000–2014. The authors employ the option-based CEO overconfidence metric of Malmendier et al. (2011) as the primary explanatory variable. Findings The authors find that overconfident CEOs are less likely to be subjected to labor-related litigations. The authors document that firms with overconfident CEOs have fewer lawsuits opened by both labor unions and individuals. The authors then investigate the effect of employee litigations on firm performance to understand why overconfident CEOs are less prominent among lawsuits. The authors show that litigations lower corporate investment and value of capital expenditures for responsible firms, which may limit overconfident CEOs’ ability to invest. Therefore, the results may reveal the fact that overconfident CEOs may prefer to align with the interest of their employees to avoid reduced investment opportunities. Originality/value The paper makes three main contributions. First, it provides the first large-sample evidence on CEO overconfidence and labor relations. The authors employ data on firm-level labor litigation that contains both the case reason and case outcome. Second, this paper adds to the growing literature of CEO overconfidence and governance practices in the workplace. Finally, the study highlights the importance of employee treatment and explores the impact of labor lawsuits on firm value.
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Mundi, Hardeep Singh, and Parmjit Kaur. "CEO Overconfidence and Capital Structure Decisions: Evidence from India." Vikalpa: The Journal for Decision Makers 47, no. 1 (March 2022): 19–37. http://dx.doi.org/10.1177/02560909221079270.
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Executive Summary Capital structure decisions are vital for firms. Existing theories on capital structure partially explain the difference in capital structure decisions of identical firms. Researchers have integrated psychology with finance in recent years to explain the difference in capital structure decisions better. To help practitioners and academicians understand the role of psychology in capital structure decisions, this article focuses on CEO overconfidence and its influence on equity versus debt financing, short-term versus long-term debt financing, and level of debt financing concerning tax shields. Indian CEOs are unique in their leadership style, values and beliefs. Overconfidence among CEOs of S&P BSE 200 firms is measured using the press coverage of CEOs, and this proxy depicts how the press portrays CEOs. An extensive search on CEOs in relevant search engines helped measure overconfidence among CEOs. The results from regression models document that overconfident CEOs prefer debt over equity and short-term debt over long-term debt. In addition, overconfident CEOs are found to not avail the full benefits of tax shield and follow a conservative debt policy. The presence of bias of overconfidence among CEOs distorts optimal decision-making and deviates capital structure decisions from trade-off theory and pecking order theory of capital structure. The evidence on external versus internal financing helps explain the biased preference of overconfident CEOs for debt and short-term financing. The biased beliefs lead CEOs to form high expectations of cash flows. Overconfidence among CEOs is found to significantly influence capital structure decisions. The robustness of the results corroborates existing findings and documents the influence of behavioural biases on corporate decision-making.
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Liu, Jiaxin, and Dongliang Lei. "Managerial ability and stock price crash risk – the role of managerial overconfidence." Review of Accounting and Finance 20, no. 2 (August 21, 2021): 167–93. http://dx.doi.org/10.1108/raf-05-2020-0111.
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Purpose This paper aims to examine the relation between managerial ability and stock price crash risk, conditional on managerial overconfidence. In addition, conditional on managerial overconfidence, the authors investigate the effect of managerial ability on firms’ choice of bad news hoarding channels, which result in a stock price crash. Design/methodology/approach Using a sample of 24,289 firm-years from companies listed on Compustat and CRSP from 1994 to 2018, the authors conduct panel regression analysis. Findings The authors find that managerial ability is positively associated with stock price crash risk only when managerial overconfidence is high. Furthermore, the authors find that managerial ability seems to exacerbate (attenuate) the bad news withholding by the overconfident managers using the earnings guidance (earnings management) channel. The authors find limited evidence that high-ability managers are likely to withhold bad news through the overinvestment channel and “other channels” when managers are overconfident. Finally, the authors find that the joint effect of managerial overconfidence and managerial ability on firms’ crash risk is more pronounced when there is a material weakness in firms’ internal controls, high investor belief heterogeneity and high information asymmetry. However, this effect appears to dissipate during the recent financial crisis in 2008. Originality/value This research reveals that managerial ability is costly to firms by engendering bad news hoardings and stock price crash risk when managers are overconfident. It also sheds light on how managerial overconfidence and managerial ability affect managers’ choice of bad news withholding channels and stock price crash risk. Finally, the paper is of practical value to the board of directors in selecting the prospective executives.
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Kuranchie-Pong, Raphael, and Joseph Ato Forson. "Overconfidence bias and stock market volatility in Ghana: testing the rationality of investors in the Covid-19 era." African Journal of Economic and Management Studies 13, no. 1 (December 21, 2021): 147–61. http://dx.doi.org/10.1108/ajems-05-2021-0209.
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PurposeThe paper tests the overconfidence bias and volatility on the Ghana Stock Exchange (GSE) during the pre-Covid-19 pandemic and Covid-19 pandemic period.Design/methodology/approachThe study employs pairwise Granger causality to test the presence of overconfidence bias on the Ghana stock market as well as GARCH (1,1) and GJR-GARCH (1, 1) models to understand whether overconfidence bias contributed to volatility during pre-Covid-19 pandemic and Covid-19 pandemic period. The pre-Covid-19 pandemic period spans from January, 2019 to December, 2019, and Covid-19 pandemic period spans from January, 2020 to December, 2020.FindingsThe paper finds a unidirectional Granger causality running from weekly market returns to weekly trading volume during the Covid-19 pandemic period. These results indicate the presence of overconfidence bias on the Ghana stock market during the Covid-19 pandemic period. Finally, the conditional variance estimation results showed that excessive trading of overconfident market players significantly contributes to the weekly volatility observed during the Covid-19 pandemic period.Research limitations/implicationsThe empirical findings demonstrate that market participants on the GSE exhibit conditional irrationality in their investment decisions during the Covid-19 pandemic period. This implies investors overreact to private information and underreact to available public information and as a result become overconfident in their investment decisions.Practical implicationsFindings from this paper show that there is evidence of overconfidence bias among market players on the GSE. Therefore, investors, financial advisors and other market players should be educated on overconfidence bias and its negative effect on their investment decisions so as to minimize it, especially during the pandemic period.Originality/valueThis study is a maiden one that underscores investors’ overconfidence bias in the wake of a pandemic in the Ghanaian stock market. It is a precursor to the overconfidence bias discourse and encourages the testing of other behavioral biases aside what is understudied during the Covid-19 pandemic period in Ghana.
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de Zwaan, Laura, Chrisann Lee, Yulin Liu, and Toni Chardon. "Overconfidence in Financial Literacy: Implications for Planners." Financial Planning Research Journal 3, no. 2 (December 1, 2017): 31–46. http://dx.doi.org/10.2478/fprj-2017-0007.
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ABSTRACT Financial literacy of clients is an important consideration for financial planners as it has implications for determining financial capacity. Likewise, overconfidence is also an important concern, given that overconfident clients may indicate they understand advice when in reality they do not. Using an online survey, we gathered data on subjective and objective levels of financial literacy from a sample of university students. We then examined the associations between self-assessed and actual levels of financial literacy with the aim of identifying overconfidence. We find, generally, respondents do not overestimate their financial literacy; however, respondents with English as a second language were significantly more overconfident than other demographic groups. These findings can help planners in identifying clients who may be overconfident in their own financial literacy.
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Wrońska-Bukalska, Elżbieta. "Power of an overconfident CEO and dividend payment." Journal of Management and Financial Sciences, no. 35 (July 27, 2019): 61–80. http://dx.doi.org/10.33119/jmfs.2018.35.4.
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The aim of the paper is to identify the relation between managerial overconfidence, managerial power and dividend decisions. We have implemented the survey to detect managerial overconfidence. We collected 145 answers with financial data covering 2010–2015. We employed the managerial share in ownership as a proxy for managerial power.We found that managerial power enhances to reveal the overconfidence in dividend decisions. We also found the pattern of behaviour of an overconfident manager having more power: more frequent dividends are paid out, but if dividend is paid out, the level and ratio of the dividend is lower.
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Wong, Ying-Jiuan, and Chi-Feng Wang. "Is an overconfident CEO good for advertising investments?" Australian Journal of Management 43, no. 3 (December 13, 2017): 439–55. http://dx.doi.org/10.1177/0312896217733307.
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In this study, we identify a link between CEO overconfidence and advertising investments by examining the specific impact overconfident CEOs have on stock market responses to new TV commercial announcements. Furthermore, we investigate whether family ownership moderates this relationship. Our results reveal a negative correlation between CEO overconfidence and stock market performance, and that family ownership magnifies this negative relationship. Our study thus highlights the role CEOs’ personal attributes have on influencing investors’ assessments of corporate advertising investments and reveals there is a potential for family ownership to intensify this negative relationship between CEO overconfidence and the market value of new advertising investments.
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Han, Jun, Karim Jamal, and Hun-Tong Tan. "Auditors’ Overconfidence in Predicting the Technical Knowledge of Superiors and Subordinates." AUDITING: A Journal of Practice & Theory 30, no. 1 (February 1, 2011): 101–19. http://dx.doi.org/10.2308/aud.2011.30.1.101.
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SUMMARY: Prior research in auditing indicates that superiors are overconfident in predicting the technical knowledge of individual subordinates. We extend this literature by examining overconfidence effects when a subordinate makes a prediction about a superior’s technical knowledge, and showing that the specific nature of the effects of task difficulty on overconfidence is contingent on the hierarchical rank of the predictor auditor relative to the target auditor. We investigate overconfidence effects when the target is an individual and extend it to the situation when the target is a group. We conducted an experiment using teams comprising audit seniors and managers. We find that audit managers’ (seniors’) overconfidence in audit seniors’ (managers’) technical knowledge is larger (smaller) for a more difficult task than for a less difficult task, for both individual and group predictions.
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Safari Gerayli, Mehdi, Mohammadreza Abdoli, Hasan Valiyan, and Ali Damavandi. "Managerial overconfidence and internal control weaknesses: evidence from Iranian firms." Accounting Research Journal 34, no. 5 (March 1, 2021): 475–87. http://dx.doi.org/10.1108/arj-02-2020-0043.
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Purpose The characteristic of managers’ personality is a key factor in their decision-making. One of the most important personality characteristic of managers is overconfidence. Overconfident managers have false trust about their abilities and have a positive view of the firm’s future performance. Thus, the purpose of this study is to investigate the association between managerial overconfidence and internal control weaknesses (ICW) of the firms listed on the Tehran Stock Exchange (TSE). Design/methodology/approach Sample includes the 480 firm-year observations from companies listed on the TSE during the years 2013–2017, and the hypothesis is tested using multivariate regression model based on panel data analysis. Findings The authors found that managerial overconfidence increases the firms’ ICW. The findings are robust to alternative measure of managerial overconfidence, individual analysis of the research hypothesis for each year and endogeneity concern. Moreover, additional analysis reveals that the positive relationship between managerial overconfidence and ICW is less pronounced in larger firms. Originality/value To the best of the authors’ knowledge, this is the first study to analyze the association between managerial overconfidence and ICW in emerging capital markets and, therefore, can contribute to extend the current literature on managerial overconfidence and ICW in developing countries, especially Iran’s emerging capital market.
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Zavertiaeva, Marina, Iuliia Naidenova, and Petr Parshakov. "No confidence–no glory? Coach behavioral bias and team performance." International Journal of Sports Science & Coaching 13, no. 6 (February 5, 2018): 863–73. http://dx.doi.org/10.1177/1747954118757438.
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According to behavioral economics, coaches may be unconsciously biased, and this could lead to deviations from rational behavior, which in turn affects team performance. We analyze the influence of a particular behavioral bias of coaches, overconfidence, on the performance of soccer teams. We use a sample of 63 coaches managing all the soccer clubs involved in the Russian Football Premier League during the four seasons between 2010 and 2013/2014. To measure overconfidence, we use a press-based metric that is generally accepted in corporate governance studies and complement it with an additional continuous measure. Coaches' overconfidence positively and significantly influences team average scores, both in the baseline regression and robustness checks. Additional testing allows us to draw conclusions regarding the inverse U-shaped relationship between overconfidence and performance. We cannot conclude that overconfidence has any effect on coaches' risk-taking that can be approximated by goals scored or allowed. We apply the well-studied methodology of overconfidence measurement to the new field of sport economics, thereby generating novel results. Although overconfidence is perceived negatively in corporate governance, we show that in sport, it is beneficial to be overconfident. The findings contribute to sport literature, more specifically to the field of performance in soccer, with results that support the importance of a coach's personal traits.
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Pandit, Kul Chandra. "Trading practice and Behavioral Biases of Individual Investors in Nepalese Stock Market." Nepalese Journal of Management Research 1 (January 31, 2021): 55–62. http://dx.doi.org/10.3126/njmgtres.v1i0.37323.
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The paper was based on survey research design. There is significant association between experience group with herding bias and optimism bias and there is no significant association between experience group with investment decision bias, disposition effect bias, and overconfidence bias. Similarly there is significant association between trading frequency with herding bias, optimism bias, investment decision bias, disposition effect bias, and overconfidence bias. Heuristics may make investors overconfident as they overlook risks causing security price to move away from fundamentals. Investors tend to be overconfident and hence overestimate the accuracy of their forecast due to illusion of knowledge and illusion of control.
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Jiang, Weifan, and Jian Liu. "Inventory Financing with Overconfident Supplier Based on Supply Chain Contract." Mathematical Problems in Engineering 2018 (September 25, 2018): 1–12. http://dx.doi.org/10.1155/2018/5054387.
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Overconfidence is a universal psychological behavior. Overconfidence on demand awareness will have a significant impact on operation decisions. The supplier estimated the demand with excessive precision which influences the inventory financing decision-making deeply. We built the demand function based on the supplier’s overconfidence. Then we established the retailer, supplier, and the Bank’s profit function, respectively. Through the analysis of the bilevel Stackelberg game, we obtained the order quantity of the retailer with the capital constraint, the wholesale price of overconfident supplier, and the loan-to-value ratio of Bank, and we analyzed the influence of overconfidence on the decision variables. We have several findings as follows. First, the overconfidence makes the decisions of the retailer, supplier, and Bank deviate from the rational decisions. Second, the space of the market profit will affect the decision variables in the joint decision-making. Third, the financing supply chain (including the Bank and supply chain) should have a positive attitude towards the overconfidence of the supplier. Forth, in the joint decision-making, the supplier need determines the buyback price according to the capital demand; and in the decentralized decision-making, the supplier should try to use high buyback price strategy.