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Self-attribution of overconfident CEOs and asymmetric investment-cash flow sensitivity

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  • Choi, Paul Moon Sub
  • Chung, Chune Young
  • Liu, Chang

Abstract

In this paper, we examine whether overconfidence coupled with a self-attribution bias affects the investment decisions of top corporate managers. First, overconfidence of chief executive officers appears to lead to the downward rigidity of investment-cash flow sensitivity. Additionally, overconfidence intensified by managerial self-attribution exacerbates the stickiness of investment-cash flow sensitivity. These results hold in both financially unconstrained and constrained firms with stronger results in the former. Overall, our findings are in line with the literature that lends support to the excessive investment commitment of overconfident managers.

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  • Choi, Paul Moon Sub & Chung, Chune Young & Liu, Chang, 2018. "Self-attribution of overconfident CEOs and asymmetric investment-cash flow sensitivity," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 1-14.
    • Handle: RePEc:eee:ecofin:v:46:y:2018:i:c:p:1-14
    DOI: 10.1016/j.najef.2017.10.008
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    7. Chiu, Chun-Ju & Ho, Amy Yueh-Fang & Tsai, Li-Fang, 2022. "Effects of financial constraints and managerial overconfidence on investment-cash flow sensitivity," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 135-155.
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    Keywords

    Investment-cash flow sensitivity; Overconfidence; Self-attribution bias;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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