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CEO Overconfidence and Stock Price Crash Risk
Contemporary accounting research, 2016-12, Vol.33 (4), p.1720-1749
[Peer Reviewed Journal]
CAAA ;Copyright Canadian Academic Accounting Association Winter 2016 ;ISSN: 0823-9150 ;EISSN: 1911-3846 ;DOI: 10.1111/1911-3846.12217
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Title:
CEO Overconfidence and Stock Price Crash Risk
Author:
Kim, Jeong-Bon
;
Wang, Zheng
;
Zhang, Liandong
Subjects:
Accounting policies
;
Chief executive officers
;
Net present value
;
Return on investment
;
Stock prices
;
Studies
Is Part Of:
Contemporary accounting research, 2016-12, Vol.33 (4), p.1720-1749
Description:
This study examines the association between chief executive officer (CEO) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value (NPV) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a large sample of firms for the period 1993–2010, we find that firms with overconfident CEOs have higher stock price crash risk than firms with nonoverconfident CEOs. The impact of managerial overconfidence on crash risk is more pronounced when the CEO is more dominant in the top management team and when there are greater differences of opinion among investors. Finally, it appears that the effect of CEO overconfidence on crash risk is less pronounced for firms with more conservative accounting policies. Excès de confiance des chefs de la direction et risque d'effondrement du cours des actions Les auteurs étudient le lien entre l'excès de confiance des chefs de la direction et le risque d'effondrement futur du cours des actions. Les gestionnaires trop confiants surestiment les rendements de leurs projets d'investissement et ont une perception erronée de projets dont la valeur actualisée nette (VAN) est négative qu'ils estiment pourtant créateurs de valeur. Ils tendent également à ignorer ou à justifier les résultats négatifs qu'ils observent personnellement. En conséquence, des projets dont la VAN est négative sont maintenus trop longtemps et leurs rendements médiocres s'accumulent, ce qui risque d'entraîner l'effondrement du cours des actions. En étudiant un vaste échantillon de sociétés au cours de la période s’échelonnant de 1993 à 2010, les auteurs constatent que les sociétés dont les chefs de la direction sont exagérément confiants s'exposent à des risques d'effondrement du cours des actions plus élevés que les sociétés dont les chefs de la direction n'affichent pas cet excès de confiance. L'incidence de l'excès de confiance de la direction sur le risque d'effondrement est davantage marqué lorsque le chef de la direction exerce une plus grande domination au sein de l’équipe de haute direction et lorsque les divergences d'opinion chez les investisseurs sont plus importantes. Enfin, il semble que l'incidence de l'excès de confiance des chefs de la direction sur le risque d'effondrement soit moins grande dans le cas de sociétés dont les méthodes comptables sont plus prudentes.
Publisher:
Toronto: Blackwell Publishing Ltd
Language:
English
Identifier:
ISSN: 0823-9150
EISSN: 1911-3846
DOI: 10.1111/1911-3846.12217
Source:
Alma/SFX Local Collection
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