Overconfidence Papers

Papers

Malmendier & Tate 2005

@article{malmendier2005ceo,
 title={CEO overconfidence and corporate investment},
 author={Malmendier, Ulrike and Tate, Geoffrey},
 journal={The journal of finance},
 volume={60},
 number={6},
 pages={2661--2700},
 year={2005},
 publisher={Wiley Online Library}
 abstract={We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds as unduly costly. Thus, they overinvest when they have abundant internal funds, but curtail investment when they require external financing. We test the overconfidence hypothesis, using panel data on personal portfolio and corporate investment decisions of Forbes 500 CEOs. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk. We find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms.}
}

Hall & Liebman 1997

@techreport{hall1997ceos,
 title={Are CEOs really paid like bureaucrats?},
 author={Hall, Brian J and Liebman, Jeffrey B},
 year={1997},
 institution={National bureau of economic research}
 abstract={A common view is that there is little correlation between firm performance
and CEO pay. Using a new fifteen-year panel data set of CEOs in the largest,
publicly traded U. S. companies, we document a strong relationship between firm
performance and CEO compensation. This relationship is generated almost
entirely by changes in the value of CEO holdings of stock and stock options. In
addition, we show that both the level of CEO compensation and the sensitivity of
compensation to firm performance have risen dramatically since 1980, largely
because of increases in stock option grants.}
}

Yermack 1995

@article{yermack1995corporations,
 title={Do corporations award CEO stock options effectively?},
 author={Yermack, David},
 journal={Journal of financial economics},
 volume={39},
 number={2},
 pages={237--269},
 year={1995},
 publisher={Elsevier}
 abstract={This paper analyzes stock option awards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options' performance incentives have significant associations with explanatory variables related to agency cost reduction. Further tests examine whether the mix of compensation between stock options and cash pay can be explained by corporate liquidity, tax status, or earnings management. Results indicate that few agency or financial contracting theories have explanatory power for patterns of CEO stock option awards.}
}

Related Pages

• Winner's Curse in Acquisitions (Academic Paper)