Making the same mistake all over again: CEO overconfidence and corporate resistance to corrective feedback

Chen, Guoli; Crossland, Craig; Luo, Shuqing

doi:10.1002/smj.2291

Cited by 212 publications

(240 citation statements)

References 115 publications

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“…CEO overconfidence is a construct that is difficult to capture. We therefore follow previous research and create two additional proxies of CEO overconfidence (Campbell et al, ; Chen et al, ). The first alternative proxy is “equity purchase.” Following Campbell et al (), we created a behavioral overconfidence variable based on the CEO's net purchase of shares in the firm.…”

Section: Resultsmentioning

confidence: 99%

“…In addition, experienced directors in the CSR area may provide advice and counsel to other directors on the board, increasing the overall ability of the board to monitor CSR‐related issues. Moreover, overconfident CEOs often do not search for helpful or corrective information in their environment (Chen et al, ; Tang, Qian, et al, ). The CSR advice provided by directors with CSR expertise may offer a new perspective to overconfidence CEOs, resulting in a more accurate representation of the firm's CSR activities and performance.…”

Section: Corporate Governance and Cognitive Biasesmentioning

confidence: 99%

“…We suggest that CEOs' cognitive biases affect the degree of CSR decoupling. Recent attention points to overconfidence as one of the most powerful and prevalent cognitive biases among CEOs (Chen, Crossland, & Luo, ; Tang, Li, & Yang, ; Tang, Qian, Chen, & Shen, ). We propose that overconfident CEOs have a biased perception of their abilities to influence their firm's CSR activities.…”

Section: Introductionmentioning

confidence: 99%

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CEO overconfidence and CSR decoupling

Sauerwald

2019

Corporate Governance

107

128

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Research question/issue This study examines whether there is decoupling between how firms communicate about corporate social responsibility (CSR) and what firms do in terms of CSR. We argue that this CSR decoupling is driven by the CEOs' cognitive biases. Specifically, we propose that overconfident CEOs increase CSR decoupling. Research findings/insights We tested our arguments in a sample of S&P 500 firms for the period of 2006–2014. We find that CEO overconfidence is positively related to the decoupling between the optimistic tone of CSR reporting and the firm's actual corporate social performance. However, the board of directors mitigates the effect of CEO overconfidence on CSR decoupling when outside directors have CSR expertise and ownership incentives. Theoretical/academic implications Previous studies have suggested that CSR decoupling is a function of opportunistic management that can be constrained by external monitoring. We examine CSR decoupling as a function of cognitive biases (such as overconfidence) that can be constrained by internal monitoring. Practitioner/policy implications This study provides insights into the conditions when CSR information released by the firm is symbolic. Practitioners may prevent such symbolic CSR reporting by imposing effective oversight by the board of directors.

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Section: Resultsmentioning

confidence: 99%

Section: Corporate Governance and Cognitive Biasesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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CEO overconfidence and CSR decoupling

Sauerwald

2019

Corporate Governance

107

128

View full text Add to dashboard Cite

show abstract

“…Consistent with prior research, we measured managerial confidence in several ways. Each measure of confidence was conceptualized as a continuous variable in which higher values suggest greater confidence (e.g., Chen, Crossland, & Luo, ). First, recent firm success may trigger greater levels of managerial confidence.…”

Section: Methodsmentioning

confidence: 99%

High-Reputation Firms and Their Differential Acquisition Behaviors

2017

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Research summary: Emerging reputation research suggests that high‐reputation firms will act to maintain their reputations in the face of high expectations. Yet, this research remains unclear on how high‐reputation firms do so. We advance this research by exploring three questions related to high‐reputation firms' differential acquisition behaviors: Do high‐reputation firms make more acquisitions than similar firms without this distinction? What kind of acquisitions do they make? How do investors react to high‐reputation firms' differential acquisition behaviors? We find that high‐reputation firms make more acquisitions and more unrelated acquisitions than other firms. Yet, we also find that investors bid down high‐reputation firms' stock more than other firms' in response to acquisition announcements, suggesting that investors are skeptical of how high‐reputation firms maintain their reputations. Managerial summary: We know that high‐reputation firms wish to maintain their elite standing in the face of high‐market expectations, but we know little about how they do so. We explore this puzzle by investigating how reputation maintenance influences high‐reputation firms' acquisition behaviors. We classify high‐reputation firms are those firms that make Fortune's Most Admired annual list, and we find that high‐reputation firms make more acquisitions and more unrelated ones than other firms. Surprisingly, we also find that the market tends to react negatively to these acquisitions. Thus, managers may want to reconsider their strategy of making acquisitions as a means to maintain their firms' high reputations. Copyright © 2017 John Wiley & Sons, Ltd.

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“…While the bulk of this literature focuses on how CEO preferences affect firm strategy and performance (e.g., Hambrick and Mason 1984;Finkelstein and Hambrick 1996;Waldman andYammarino 1999, Chen, Crossland, andLuo, 2014), our study relates more closely to the few recent articles on the role of CEO political attitudes on business decisions, which find associations between the CEO's attitude and (a) the firm's corporate social responsibility practices (Chin, Hambrick, and Trevino 2013;Di Giuli and Kostovetsky 2014) and (b) employees' tendency to engage in activism (Briscoe, Chin, and Hambrick 2014). Our work supplements this literature by examining the influence of a CEO's political and social attitudes on citizens' attitudes and consumers' purchasing intent.…”

Section: Discussionmentioning

confidence: 99%