CEO Overconfidence and Corporate Financial Distress

Ho, Chao Rung; Chang, Yuanchen

doi:10.2139/ssrn.2128161

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CEO Overconfidence and Corporate Financial Distress

25th Australasian Finance and Banking Conference 2012

29 Pages Posted: 12 Aug 2012

See all articles by Chao Rung Ho

Yuanchen Chang

National Chengchi University - College of Commerce

There are 2 versions of this paper

Date Written: August 11, 2012

Abstract

This paper examines the relation between CEO overconfidence and corporate financial distress. We investigate whether CEO overconfidence accounts for corporate financial distress using U.S. data from 1980 to 1994. We use CEOs’ private portfolio and their press coverage as proxies for overconfidence to test our hypothesis. We find that optimistic CEOs make biased investing decisions and reduce stockholder wealth. We also find that stock owners and vested options confirm that managerial overconfidence is more likely to lead to corporate financial distress. Interestingly, overconfident CEOs mentioned in the Wall Street Journal will decrease the incidence of occurrence of corporate financial distress.

Keywords: Overconfidence, Corporate Financial Distress, Press Coverage

Suggested Citation: Suggested Citation

Ho, Chao Rung and Chang, Yuanchen, CEO Overconfidence and Corporate Financial Distress (August 11, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2128161 or http://dx.doi.org/10.2139/ssrn.2128161