Research / BFI Working PaperAug 24, 2020

What Is CEO Overconfidence? Evidence from Executive Assessments

We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

More Research From These Scholars

BFI Working Paper Sep 29, 2020

Private Equity and COVID-19

Paul A. Gompers, Steven Neil Kaplan, Vladimir Mukharlyamov
Topics:  COVID-19, Financial Markets
BFI Working Paper Nov 23, 2020

Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds

Robert S. Harris, Tim Jenkinson, Steven Neil Kaplan, Ruediger Stucke
BFI Working Paper Jan 14, 2022

Information versus Investment

Stephen J. Terry, Toni M. Whited, Anastasia A. Zakolyukina
Topics:  Financial Markets