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How and when CEO overconfidence increases firm performance: A social and deception-based theory

Author

Listed:
  • Laurent Vilanova

    (COACTIS - COnception de l'ACTIon en Situation - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne)

Abstract

Recent research posits that (i) many CEOs are overconfident in that they overestimate their abilities, their knowledge and their firm's future outcomes, and (ii) CEO overconfidence destroys firm value. In this paper, we develop a theory explaining how and when moderate CEO overconfidence might increase firm performance. Our basic argument is that CEO overconfidence has two contrasting effects on performance: it impairs the accuracy of decisions and often leads to overinvestment; in contrast, CEO overconfidence facilitates the deception and persuasion of others and can generate social benefits for the firm by inducing favorable reactions in allies (e.g., employees or investors) and rivals (e.g., competitors). Overall, our theory helps delineate the conditions under which CEO overconfidence yields positive short-term and/or long-term firm performance.

Suggested Citation

  • Laurent Vilanova, 2019. "How and when CEO overconfidence increases firm performance: A social and deception-based theory," Post-Print hal-04747950, HAL.
    • Handle: RePEc:hal:journl:hal-04747950
    as

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