The Informational Role of Overconfident CEOs
30 Pages Posted: 23 Aug 2016 Last revised: 1 Oct 2018
Date Written: August 13, 2018
Abstract
We study how overconfident CEOs communicate with the market and whether this has implications on the firm’s information environment. Textual analysis reveals that overconfident CEOs communicate using less negative tone in their 10K/Q filings. Our evidence suggests that overconfident CEOs provide market participants with more value-relevant information as sell-side analysts make more accurate forecasts of their firm’s future earnings. Consistent with a reduction in asymmetric information, implied cost of equity capital is lower. However, not all investors benefit as the information advantage of short sellers disappears in the stocks of overconfident CEOs.
Keywords: Overconfident CEOs, Information Asymmetry, Cost of Capital, Short Interest
JEL Classification: D80, G14, G30
Suggested Citation: Suggested Citation