Are overconfident CEOs better leaders? Evidence from stakeholder commitments

Phua, Kenny; Tham, T. Mandy; Wei, Chi Shen

doi:10.1016/j.jfineco.2017.12.008

Cited by 104 publications

(57 citation statements)

References 48 publications

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“…The first dependent variable, for H1, is Departure of valuable employees . As comprehensive data on the firm‐level turnover of employees is not publicly available, we followed existing research (Babenko & Sen, 2014; Carter & Lynch, 2004; Phua, Tham, & Wei, 2018) and used the rate of employee stock option cancellations, forfeitures, and expirations to capture this variable. Stock options are a common form of employee compensation in public U.S. companies to incentivize employees and align interest.…”

Section: Methodsmentioning

confidence: 99%

Hedge fund investor activism and human capital loss

Chen

Meyer‐Doyle

Shi

2021

Strategic Management Journal

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Research summary: Prior research suggests that hedge fund activism can benefit targeted firms. We explore a potential negative side‐effect of hedge fund activism: the unwanted loss of human capital in targeted firms. We find that firms targeted by hedge fund activists experience a greater departure of valuable employees compared with a matched sample of non‐targeted firms. Further, the positive effect of hedge fund activism on firm performance is stronger when firms experience a lower departure of valuable employees. These results suggest that hedge fund activism can lead to the unwanted loss of human capital, which may reduce the otherwise positive performance effect on targeted firms. These findings contribute to research on investor activism and human capital. Managerial summary: Hedge fund activism has been shown to benefit shareholders of targeted firms. We investigate a potential negative side‐effect of hedge fund activism: the unwanted loss of human capital in targeted firms. We find that targeted firms experience a greater departure of valuable employees when attacked by hedge fund activists, and that the positive performance effect of hedge fund activism is greater if that departure is smaller. Our results, together with additional analyses, are consistent with our argument that valuable employees decide to leave firms targeted by hedge fund activists to reduce the potential uncertainty and adversity for their careers, and that this human capital loss can harm firm performance. Our study has important implications for firms facing the potential prospect of hedge fund activism.

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Section: Methodsmentioning

confidence: 99%

Hedge fund investor activism and human capital loss

Chen

Meyer‐Doyle

Shi

2021

Strategic Management Journal

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“…The study also contributes to the managerial overconfidence literature. Existing literature has primarily focused on investment (Malmendier and Tate (2005), 2008 commitments (Phua et al (2018)). Less is known, however, about the effect of managerial overconfidence on firm's cash policy.…”

Section: Introductionmentioning

confidence: 99%

CEO overconfidence and the value of corporate cash holdings

Aktas

Louca

Petmezas

2019

Journal of Corporate Finance

113

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Cash holding is on average more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board is associated with an increase of $0.28 in the value of $1.00 cash holding. The positive effect of CEO overconfidence on the value of cash concentrates among firms that are more likely to suffer from the underinvestment problem (i.e., financially constrained firms which exhibit high growth opportunities). In addition, CEO overconfidence affects negatively the value of cash in firms that are financially unconstrained, a finding which is consistent with the overinvestment hypothesis. The results are robust to various tests and alternative explanations.

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“…Following the convention in the literature, we use a R&D-based RSI measure, Sup_RSI, as a proxy for supplier commitment, because RSIs typically include elements and characteristics that are specific to a particular relationship and may be of little value or use outside the relationship (Dass et al, 2015;Kale & Shahrur, 2007;Phua et al, 2018;Raman & Shahrur, 2008). Sup_RSI is constructed using the product of the supplier's R&D expenditure and the fraction of its total annual sales to its major customer, which is then scaled by total assets of the supplier, and finally multiplied by 1,000.…”

Section: Supplier Commitmentmentioning

confidence: 99%

“…Industry fixed effects are based on two-digit SIC codes. Standard errors are clustered at the customer-year level following Phua et al (2018).…”

Section: Baseline Estimationmentioning

confidence: 99%

Working hard for long‐distance relationships: Geographic proximity and relationship‐specific investments

Huang

Shang

Zhang

2021

Financial Management

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Suppliers that are farther away from their customers make more relationship-specific investments (RSI). This association is more pronounced when it is less costly for the customer to switch to alternative suppliers and when the supplier operates in relatively opaque information environments. Using the introduction of new airline routes as an exogenous shock to the distance between supply chain partners, we show that the relation between supplier RSI and distance may be causal. We also provide evidence that suppliers with larger RSI are better able to maintain long-distance business relationships and are associated with higher firm value. These findings suggest an important dimension of supplier commitment: Suppliers use RSI as a signal of their willingness to fulfill on-going implicit claims.

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Are overconfident CEOs better leaders? Evidence from stakeholder commitments

Cited by 104 publications

References 48 publications

Hedge fund investor activism and human capital loss

Hedge fund investor activism and human capital loss

CEO overconfidence and the value of corporate cash holdings

Working hard for long‐distance relationships: Geographic proximity and relationship‐specific investments

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