CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom

Jingsi Leng; Aydin Ozkan; Neslihan Ozkan; Agnieszka Trzeciakiewicz

doi:10.1080/1351847X.2021.1876131

CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom

Jingsi Leng, Aydin Ozkan, Neslihan Ozkan, Agnieszka Trzeciakiewicz^*

^*Corresponding author for this work

The York Management School

Research output: Contribution to journal › Article › peer-review

Abstract

This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.

Original language	English
Pages (from-to)	1210-1234
Number of pages	25
Journal	European Journal of Finance
Volume	27
Issue number	12
Early online date	24 Jan 2021
DOIs	https://doi.org/10.1080/1351847X.2021.1876131
Publication status	Published - 2021

Keywords

CEO overconfidence
corporate bankruptcy
corporate governance
hazard model

Access to Document

10.1080/1351847X.2021.1876131

Cite this

@article{50a29fbe5d104bf19c7096d60f3e1fa0,

title = "CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom",

abstract = "This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.",

keywords = "CEO overconfidence, corporate bankruptcy, corporate governance, hazard model",

author = "Jingsi Leng and Aydin Ozkan and Neslihan Ozkan and Agnieszka Trzeciakiewicz",

year = "2021",

doi = "10.1080/1351847X.2021.1876131",

language = "English",

volume = "27",

pages = "1210--1234",

journal = "European Journal of Finance",

issn = "1351-847X",

publisher = "Routledge",

number = "12",

}

TY - JOUR

T1 - CEO overconfidence and the probability of corporate failure

T2 - evidence from the United Kingdom

AU - Leng, Jingsi

AU - Ozkan, Aydin

AU - Ozkan, Neslihan

AU - Trzeciakiewicz, Agnieszka

PY - 2021

Y1 - 2021

N2 - This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.

AB - This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.

KW - CEO overconfidence

KW - corporate bankruptcy

KW - corporate governance

KW - hazard model

UR - http://www.scopus.com/inward/record.url?scp=85099869846&partnerID=8YFLogxK

U2 - 10.1080/1351847X.2021.1876131

DO - 10.1080/1351847X.2021.1876131

M3 - Article

AN - SCOPUS:85099869846

SN - 1351-847X

VL - 27

SP - 1210

EP - 1234

JO - European Journal of Finance

JF - European Journal of Finance

IS - 12

ER -

CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom

Abstract

Keywords

Access to Document

Other files and links

Cite this