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Article

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
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Author to whom correspondence should be addressed.
Academic Editor: Barbara Aquilani
Sustainability 2017, 9(1), 14; https://doi.org/10.3390/su9010014
Received: 7 November 2016 / Revised: 12 December 2016 / Accepted: 20 December 2016 / Published: 23 December 2016
(This article belongs to the Section Economic and Business Aspects of Sustainability)
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
MDPI and ACS Style

Park, J.; Chung, C.Y. CEO Overconfidence, Leadership Ethics, and Institutional Investors. Sustainability 2017, 9, 14. https://doi.org/10.3390/su9010014

AMA Style

Park J, Chung CY. CEO Overconfidence, Leadership Ethics, and Institutional Investors. Sustainability. 2017; 9(1):14. https://doi.org/10.3390/su9010014

Chicago/Turabian Style

Park, Joohee, and Chune Young Chung. 2017. "CEO Overconfidence, Leadership Ethics, and Institutional Investors" Sustainability 9, no. 1: 14. https://doi.org/10.3390/su9010014

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