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Terrorist attacks and corporate investment: The beneficial value of CEO overconfidence

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  • Kim, Hyeong Joon
  • Mun, Seongjae

Abstract

This study examines whether terrorist attacks influence corporate investments and firm value. We expect that overconfident CEOs can mitigate the underinvestment problem caused by terrorist attacks because they overestimate the returns on investment. Using measures of terrorist attack proximity in the U.S., we find that firms with non-overconfident CEOs significantly decrease their investment growth when terrorist attacks affect them, while firms with overconfident CEOs do not. Consequently, the impact of terrorist attacks on firm value varies between firms with overconfident and non-overconfident CEOs. Overall, this study suggests that CEO overconfidence can benefit shareholder value under certain conditions, such as terrorist attacks.

Suggested Citation

  • Kim, Hyeong Joon & Mun, Seongjae, 2022. "Terrorist attacks and corporate investment: The beneficial value of CEO overconfidence," International Review of Financial Analysis, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003131
    DOI: 10.1016/j.irfa.2022.102363
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    Cited by:

    1. Le, Anh-Tuan & Doan, Anh-Tuan & Lin, Kun-Li, 2024. "CEO overconfidence and the informativeness of bank stock prices," International Review of Financial Analysis, Elsevier, vol. 94(C).
    2. Guiyu Bai & Delin Meng, 2022. "Assessing Influence Mechanism of Management Overconfidence, Corporate Environmental Responsibility and Corporate Value: The Moderating Effect of Government Environmental Governance and Media Attention," IJERPH, MDPI, vol. 20(1), pages 1-19, December.

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    More about this item

    Keywords

    Terrorist attacks; Corporate investment; Underinvestment problem; CEO overconfidence; Firm value;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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