TY - JOUR
T1 - CEO overconfidence and the probability of corporate failure
T2 - evidence from the United Kingdom
AU - Leng, Jingsi
AU - Ozkan, Aydin
AU - Ozkan, Neslihan
AU - Trzeciakiewicz, Agnieszka
N1 - Funding Information:
We thank Chris Florackis, Phil Holmes, Robert Hudson, Andrew Stark, Abhijit Sharma, Bin Xu, audiences at 1st Financial Management and Accounting Research Conference (Limassol, Cyprus), 3rd International Corporate Governance Society Conference (Rome, Italy), and Corporate Governance and Corporate Finance Workshop held at the University of Sheffield for comments and suggestions. Any errors are entirely our own.
Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/8/1
Y1 - 2021/8/1
N2 - This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.
AB - This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.
KW - CEO Overconfidence
KW - Hazard Model
KW - Corporate Bankruptcy
KW - Corporate governance
UR - http://www.scopus.com/inward/record.url?scp=85099869846&partnerID=8YFLogxK
U2 - 10.1080/1351847X.2021.1876131
DO - 10.1080/1351847X.2021.1876131
M3 - Article
VL - 27
SP - 1210
EP - 1234
JO - European Journal of Finance
JF - European Journal of Finance
SN - 1351-847X
IS - 12
ER -
