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Sustainability 2017, 9(1), 14; doi:10.3390/su9010014

CEO Overconfidence, Leadership Ethics, and Institutional Investors

1
College of Art, Kookmin University, 02707 Seoul, Korea
2
School of Business Administration, Chung-Ang University, 06974 Seoul, Korea
*
Author to whom correspondence should be addressed.
Academic Editor: Barbara Aquilani
Received: 7 November 2016 / Revised: 12 December 2016 / Accepted: 20 December 2016 / Published: 23 December 2016
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
View Full-Text   |   Download PDF [292 KB, uploaded 23 December 2016]

Abstract

This paper explores the influence of institutional investors’ external monitoring on CEOs’ overconfidence. We particularly examine institutional monitoring’s influence on overinvestments by overconfident CEOs and the likelihood of appointing these overconfident CEOs to firms. The results indicate that firms with overconfident CEOs have more overinvestment, as the CEOs tend to be overly optimistic about investment opportunities and are more likely to act on them. The findings, more importantly, show that institutional monitoring mechanisms attenuate overconfident CEOs’ overinvestment. However, we find that institutional monitoring is only significant when long-term and/or large institutional investors hold the firms’ shares. We also discover that investors’ institutional monitoring not only actively reduces a CEO’s overinvestments, but also negatively influences the appointment of overconfident CEOs. Overall, our study provides insights into institutional monitoring’s role in corporate governance as an effective means of preventing value-destroying behaviors by an overconfident leader and cultivating an ethical business philosophy. View Full-Text
Keywords: leadership ethics; CEO overconfidence; corporate governance; institutional monitoring; overinvestment leadership ethics; CEO overconfidence; corporate governance; institutional monitoring; overinvestment
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Park, J.; Chung, C.Y. CEO Overconfidence, Leadership Ethics, and Institutional Investors. Sustainability 2017, 9, 14.

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