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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.Sustainability 2020, 12, 61 2 of 14 CSR activities are diverse and mostly require financial resources, which include community engagement, marketing and advertising, customer relations, workplace health and safety, union relations, human rights policies, product safety and quality, transparency in reporting, governance structure, and environmental protection activities. Chan et al. [14] found that, in general, firms facing financial constraints do not engage in any CSR activities. Zhao and Xiao [15] also found that CSR engagement is negatively correlated with financial constraints. Therefore, if firms face financial constraints with regard to engaging in CSR activities, rigorous CSR activities could be harmful to their long-term performance. We examine the long-term performance of CSR activities initiated by overconfident CEOs, considering financial constraints.Prior research on the impact of a CEO's emotional bias (optimism, loss aversion, overconfidence) and other self-serving bias on corporate strategic decisions included financing decision [16], investments [17], dividend payment [18], cost behavior, and R&D expenditure [19]. This paper tries to examine the impact of CEOs' overconfidence level on CSR activities for the first time. As far as we know, no previous research has investigated the relationships between managerial overconfidence, CSR activities, and financial performance. This research offers a particular qualitative approach in providing a new measurement of CEO overconfidence through computer-assisted textual analysis, by describing and interpreting characteristics of the management discussion and analysis (MD&A). Classified as overconfident or normal, CEOs prefer to choose more or fewer CSR activities, according to their characteristics. The long-term performance of a firm depends on its CSR activities as well as its financial situation. Specifically, if a firm is financial...

This study investigates the monitoring effectiveness of the largest institutional blockholder in Korea, the Korean National Pension Service (KNPS), on firms’ engagement in corporate social responsibility (CSR). We use a large, unique sample from Korea, where the financial market is primarily characterized by chaebols. We show that lagged KNPS blockholdings do not significantly influence investee firms’ concurrent CSR indexes. This result indicates that even the largest institutional blockholder in Korea does not actively engage in firms’ CSR initiatives to enhance their long-term performance and prosperity. Overall, our results suggest that institutional investors should more actively serve as an effective corporate governance mechanism in emerging Asian markets, where companies aim to be profitable and long-term corporate governance is very important.

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