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CEO Overconfidence and Long-Term Performance Following R&D Increases

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  • Sheng-Syan Chen
  • Keng-Yu Ho
  • Po-Hsin Ho

Abstract

type="main"> We examine the relation between Chief Executive Officer (CEO) overconfidence and significant increases in research and development (R&D) expenditures. Although prior studies reveal a significantly positive market reaction to increases in R&D expenditures in both the long and short run, we find that long-run stock performance is positive only for firms whose CEOs are not overconfident. Our findings, which may be attributable to overinvestment and the overestimation of future cash flows, imply that R&D resulting from overconfident behavior does not provide any value to firms.

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  • Sheng-Syan Chen & Keng-Yu Ho & Po-Hsin Ho, 2014. "CEO Overconfidence and Long-Term Performance Following R&D Increases," Financial Management, Financial Management Association International, vol. 43(2), pages 245-269, June.
    • Handle: RePEc:bla:finmgt:v:43:y:2014:i:2:p:245-269
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