{"title":"CEO overconfidence: A dual-detriment to investment-price sensitivity via market negligence and reduced informed trading","authors":"Heung-Jae Jeon","doi":"10.1016/j.jcae.2023.100378","DOIUrl":null,"url":null,"abstract":"<div><p>This study investigates the impact of the direct and indirect effects of CEO overconfidence on investment-price sensitivity (IPS). Using a large sample of U.S. S&P 1500 firms from 1993 to 2020, I find a significant negative relationship between CEO overconfidence and investment-price sensitivity. Furthermore, the findings demonstrate that the relationship is partially mediated by the level of informed trading. This implies that overconfident CEOs not only resist using external information (direct effect) but also unintentionally diminish their chances to learn from the market by reducing informed trading (indirect effect). This study contributes to the existing literature by highlighting the role of CEO characteristics in shaping the information environment and establishing a causal link between CEO personality traits and corporate decisions.</p></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"19 3","pages":"Article 100378"},"PeriodicalIF":2.9000,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Contemporary Accounting & Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1815566923000280","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This study investigates the impact of the direct and indirect effects of CEO overconfidence on investment-price sensitivity (IPS). Using a large sample of U.S. S&P 1500 firms from 1993 to 2020, I find a significant negative relationship between CEO overconfidence and investment-price sensitivity. Furthermore, the findings demonstrate that the relationship is partially mediated by the level of informed trading. This implies that overconfident CEOs not only resist using external information (direct effect) but also unintentionally diminish their chances to learn from the market by reducing informed trading (indirect effect). This study contributes to the existing literature by highlighting the role of CEO characteristics in shaping the information environment and establishing a causal link between CEO personality traits and corporate decisions.
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