Risk, reward, and receivables: Unpacking the impact of overconfident CEOs

Abstract

This study examines the impact of CEO overconfidence on trade credit provision and finds that suppliers led by overconfident CEOs tend to have significantly longer trade receivable periods compared to their peers with non-overconfident CEOs. Our results remain robust across a comprehensive set of validation tests, including alternative CEO-overconfidence measures, propensity score matching, entropy-balancing procedures, and analyses surrounding CEO-turnover events. We further document that more aggressive trade credit decisions by overconfident CEOs are associated with enhanced future sales and market share, while simultaneously reducing operating volatility. The impact of CEO overconfidence on trade credit is more pronounced in firms with active investment activity, in high-power CEO firms, and under financially constrained conditions.