Ceo overconfidence and corporate investment 2005

Ted O’ Donoghue and Matthew Rabin. We test the overconfidence hypothesis, using data on personal portfolio and corporate investment decisions of CEOs in Forbes companies. 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.

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Skip to search form Skip to main content. Economics Published DOI: Malmendier and Geoffrey A. MalmendierGeoffrey A. Tate «This article presents the growing research area of Behavioural Corporate Finance in the context of one specific example: distortions in corporate investment due to CEO overconfidence.

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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 CEOs. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk.

CEO overconfidence and corporate investment (2005)

Skip to search form Skip to main content. Economics Published DOI: Malmendier and Geoffrey A. MalmendierAnr A. Tate «This article presents the growing research area of Behavioural Corporate Finance in the context of one specific example: distortions in corporate investment due to Ceo overconfidence and corporate investment 2005 overconfidence.

We first review the relevant psychology and experimental evidence on overconfidence. We then summarise the results of Malmendier and Tate lar on the impact of overconfidence on corporate investment.

View via Publisher. Open Access. Save to Library. Create Alert. Share This Paper. Citations Publications citing this paper. Three essays on managerial behavioral biases Valentin Burg. Time-varying managerial overconfidence and pecking order preference Andrew J. VivianBin Xu. Managerial psychology and corporate investment rationality: evidence from Tunisian listed firms Baccar Amel invdstment, Ben Mohamed EzzeddineBouri Abdelfettah.

References Publications referenced by this paper. CEO overconfidence and corporate investment Geoffrey A. CamererDan Lovallo. Who Makes Acquisitions? Corporate financial policies with overconfident CEOs. MalmendierG. TateJ. BergmanDirk Jenter. Enterpreneurial optimism and financial contracting. LandierD. Myopic social prediction and the solo comparison effect. Don A. MooreTai Gyu Kim. Related Papers.

He is also the Mitsui Professor of Economics at M. Documents: Advanced Search Include Citations. This allows to link your profile to this item. We are indebted to Brian Hall and David Yermack for providing us with the data. Venue: Journal of Finance Citations: — 10 self. Oliver Hart, In addition, we identify personal characteristics other than overconfidence education, employment background, cohort, military service, and status in the company that strongly affect the correlation between investment and cash flow. Powered by:. We explore behavioral explanations for sub-optimal corporate investment decisions. Help us Corrections Found an error or omission? Published: Malmendier, Ulrike and Geoffrey Tate.