CEO Overconfidence and Management Forecasting

Abstract

This paper examines how overconfidence affects the properties of management forecasts. Using both the “over†optimism†and “miscalibration†dimensions of overconfidence to generate our predictions, we examine three research questions. First, we examine whether overconfidence increases the likelihood of issuing a forecast. Second, we examine whether overconfidence increases the amount of optimism in management forecasts. Third, we examine whether overconfidence increases the precision of the forecast. Using both options†and press†based measures to proxy for individual overconfidence, we find support for all three research questions.