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CEO overconfidence and the informativeness of bank stock prices

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  • Le, Anh-Tuan
  • Doan, Anh-Tuan
  • Lin, Kun-Li

Abstract

This study examines the effect of the overconfidence of chief executive officers (CEOs) on the informativeness of banks' stock prices. Using an option-based overconfidence measure, we demonstrate that banks with overconfident CEOs have less informative stock prices. This finding is robust to alternative measures of overconfident CEOs and to addressing endogeneity with propensity score matching, an instrumental variable approach, and difference-in-differences analysis. Furthermore, banking and financial market crises strengthen the negative effect of overconfident CEOs on stock price informativeness, especially in larger banks. Finally, better corporate governance or higher capital mitigates the negative impact of overconfident CEOs on banks' stock price informativeness. Policymakers should consider implementing supervisory strategies that require banks to provide accurate information and encourage private-sector monitoring of banks.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001625
    DOI: 10.1016/j.irfa.2024.103230
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    Keywords

    CEO overconfidence; Stock price informativeness; Financial crisis; CEO turnover;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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