Search Results (18)

This paper investigates whether and how managerial overconfidence affects firms’ environmental information disclosure. Using 32,191 firm-year observations from Chinese companies between 2008 and 2022, the study finds that managerial overconfidence negatively impacts environmental information disclosure. These results remain robust across various tests, including alternative overconfidence measures, instrumental variable regressions, and propensity score matching. Mechanism analysis reveals that overconfidence reduces disclosure through overestimation of risk control ability and underestimation of stakeholder importance. Further analysis shows that external governance pressures from government regulation, media scrutiny, and institutional investor monitoring effectively mitigate this negative impact, while also confirming the value relevance of environmental information disclosure and the moderating role of managerial overconfidence. This study clarifies the influence and mechanisms of managerial overconfidence on environmental disclosure in developing countries, highlighting the role of external oversight. Full article

In an era of rapid technological advancement—particularly with the accelerated development of artificial intelligence and digital technologies—entrepreneurship enables firms to dynamically adjust their strategies in response to environmental uncertainty and helps them maintain sustainable competitive advantages over time. As a key concept in entrepreneurship research, entrepreneurial orientation (EO) has long attracted scholarly attention. However, existing studies on EO have primarily focused on its specific outcomes, while insufficient attention has been paid to its antecedents from the perspective of internal threats. Under the threat of performance shortfalls, firms’ strategic choices are influenced not only by resource constraints but also by managerial cognitive biases. Drawing on Behavioral Theory of the Firm, we explore the moderating roles of managerial overconfidence and myopia in the relationship between performance shortfalls and EO. This study aims to uncover the cognitive “black box” behind why some firms are more likely to trigger entrepreneurial behavior in adverse situations. Based on panel data from 2822 A-share listed companies in China spanning the period from 2009 to 2020, and using a fixed-effects regression model, our findings indicate that both historical and social performance shortfalls have significant positive effects on EO. Further analysis reveals that the positive impact of performance shortfalls on EO is attenuated under conditions of heightened managerial overconfidence and myopia. By enriching the boundary conditions of EO from a cognitive perspective, this study provides a theoretical explanation for how firms can engage in entrepreneurial behavior under threat by reducing cognitive biases, thereby offering both theoretical and managerial insights into how firms can maintain sustainable development under crisis conditions. Full article

This study examines the impact of cost stickiness on research and development (R&D) investment and corporate performance in Japanese firms. Additionally, it investigates the moderating effect of managerial overconfidence and financial slack. To do so, we analysed a sample of 4877 observations from Japanese firms listed on the Tokyo Stock Exchange between 2014 and 2020. The results show that cost stickiness generally promotes R&D investment while negatively affecting corporate performance. Further, although managerial overconfidence does not moderate the relationship between cost stickiness and R&D investment, it weakens the negative effect of cost stickiness on corporate performance. Meanwhile, financial slack strengthens the positive impact of cost stickiness on R&D investment, but it does not moderate the relationship between cost stickiness and corporate performance. These findings provide strategic insights into resource allocation behaviour in driving innovation and influencing corporate outcomes in the Japanese market context. Full article

Under the growing threat of global warming, green bonds have become a pivotal financial instrument to deal with climate change and promote sustainable development. However, the research on the affecting factors of green bond issuance remains scarce in the existing literature, particularly regarding the external influencing factors. In order to study the impact of climate risks faced by enterprises on green bond issuance and its influence mechanism, this paper takes A-share listed companies issuing green bonds in China as samples from 1 January 2000 to 31 December 2022, adopting the Probit model to study how climate risk faced by enterprises influences green bond issuance. The key findings of the research are as follows: the climate risk positively enhances green bond issuance through green transformation and green innovation. In addition, ownership concentration positively moderates the relationship between climate risk and green bond issuance, while managerial overconfidence negatively moderates the relationship. The effect of climate risk on green bond issuance is greater for larger firms, labor-intensive firms and firms with better environmental performance. Moreover, our research enriches green bond issuance theory, further supports the signal theory of green bonds, and provides theoretical guidance for the development of green bonds in China and other emerging market countries. Full article

The core characteristic of the bullwhip effect is that upstream companies overproduce or hoard inventory due to information distortion, leading to resource waste and increased carbon emissions, which severely affects the economic, environmental, and social efficiency of sustainable supply chains. This paper investigates the impact of retailers’ cognitive bias, namely, overconfidence, on the bullwhip effect in the sustainable supply chain. It characterizes retailers’ overconfidence from two aspects: overprecision and overestimation. This study finds that retailers’ overestimation biases distort demand forecasts, causing product orders and inventory decisions to significantly deviate from the rational optimal level, exacerbating the bullwhip effect in sustainable supply chains. In contrast, retailers’ overprecision bias reduces the forecast error, which has a mitigating effect on the bullwhip effect on inventory; however, this effect weakens as the level of overestimation increases. Furthermore, order lead time and the autocorrelation coefficient of demand moderate the bullwhip effect. Finally, through numerical simulation analysis, the interactive effects of overconfidence bias and operational parameters are effectively captured, providing strong validation for the theoretical results and research propositions. The conclusions of this study offer valuable managerial insights for mitigating the bullwhip effect of sustainable supply chain caused by irrational factors. It also provides policy recommendations for promoting the theoretical research and practice of sustainable supply chains. Full article

This study investigates the influence of leverage and managerial overconfidence on the decision-making process regarding real estate project financing (PF) guarantees in South Korea. Utilizing a dataset of 570 firm-year observations from construction companies listed on the South Korean stock market from 2007 to 2022, the analysis reveals that more highly leveraged companies are more likely to engage in real estate PF investments. These investments are preferred by financially strained constructors because they can use PF investments to record guarantees as contingent liabilities, avoiding the recognition of additional debt on their financial statements. This study further finds that the positive correlation between leverage and real estate PF investments strengthens with increasing managerial overconfidence, indicating that overconfident managers are prone to overestimate future project revenues and the positive impacts of potential business developments, thereby making riskier investment decisions under unfavorable borrowing conditions. Full article

Purpose: This study investigates the relationship between product diversification strategy and cost stickiness, focusing on managerial overconfidence as a moderating factor. It aims to address a critical gap in the literature by providing empirical insights grounded in the Resource-Based View (RBV) theory, specifically examining firms listed on the Tehran Stock Exchange. Methodology: Utilizing a sample of 149 companies from the Tehran Stock Exchange in Iran spanning from 2015 to 2021, this study tests two hypotheses: (1) a positive relationship between product diversification and cost stickiness and (2) the amplification of this relationship by managerial overconfidence. Product diversification is quantified using the Herfindahl Index, while managerial overconfidence is measured through an investment-based index derived from capital expenditures. Cost stickiness is assessed by analysing the asymmetric behaviour of costs in response to changes in sales, focusing on how costs tend to remain high even when sales decrease. Findings: The empirical results substantiate both hypotheses, demonstrating a significant positive relationship between product diversification strategy and cost stickiness. Furthermore, managerial overconfidence amplifies this relationship, highlighting the role of internal resources and managerial perceptions in shaping cost behaviour. Originality: This study contributes substantially to the literature by being among the first to empirically examine the interplay between product diversification strategy, cost stickiness, and managerial overconfidence. Extending the RBV theory to cost behaviour and strategic management provides novel insights for scholars and practitioners in entrepreneurship, corporate strategy, and organizational behaviour. The findings underscore the importance of strategic choices and managerial traits in determining cost stickiness, offering valuable implications for financial analysts, auditors, and stakeholders. Full article

Overconfidence (hubris or overestimation of one’s ability to perform) has been viewed in the finance literature as a character trait that is stable over time, e.g., assuming that if a manager is overconfident, he/she is overconfident all the time. In this paper, we aim to show that managerial overconfidence can be state-contingent, i.e., the level of managerial overconfidence could be influenced by an external economic shock such as the global financial crisis in 2008. A novelty of this paper is to provide evidence for and application of the concept of state-based managerial overconfidence, which is new in the finance literature. Two empirical studies were reported. In the first study (Study 1), we analyzed real market data by linear regression. We found that managerial overconfidence could vary according to changes in the state of the macroeconomy or tightening of corporate governance policies. In the second study (Study 2), we conducted a lab experiment simulating how external manipulations could alter participants’ confidence level. Both our empirical studies provide strong evidence of state-contingent overconfidence by Student’s t-test and contribute to the current finance literature, which assumes overconfidence as a personality trait. Our findings have important practical implications for the credit market. According to the state-contingent overconfidence hypothesis, creditors might reduce the loan amount or the loan duration (or other loan contract terms) too excessively by more than the efficient level during an economic downturn if the offsetting effect of state-contingent overconfidence is ignored. Full article

Innovative projects are considered risky and challenging, and specific managerial traits (such as managerial overconfidence) are needed to gain momentum. Moreover, corporate innovations are also crucial for sustainable development through the creation of more efficient, ecofriendly, and socially responsible products, processes, and business models. Therefore, the present study adds to the existing literature by examining (a) how managerial overconfidence influences firm-level innovation, (b) whether the strength of the relationship between managerial overconfidence and corporate innovation is a moderator of institutional effectiveness, and (c) whether these relationships are evident, particularly in developing contexts. We employed firm-level data from the World Bank Enterprise Survey to test such contentions and developed unique proxies for managerial overconfidence and corporate innovation. The timeframe of the study ranged from 2014 to 2017. This study is unique, as we have used a large dataset and various novel proxy measures to quantify managerial overconfidence and corporate innovation. Utilizing probit and ordered probit regression with year-fixed effect models, our robust results reveal that a firm’s innovativeness is significantly associated with managerial overconfidence. As the mother of all psychological biases, overconfidence is the most ubiquitous, with many features influencing human judgment. The findings imply that hiring managers with confident personalities or encouraging existing managers to become bold in their decision-making may increase firm-level innovation in developing countries. Moreover, the strength of the relationship between managerial overconfidence and corporate innovation is moderated by institutional effectiveness. These findings suggest that institutions play a crucial role in escalating managerial confidence and innovation by connecting and understanding the flow of knowledge, risk taking, and investing activities. Corporations can be critical in addressing global challenges and promoting sustainable development by incorporating sustainable principles into their innovation strategies. Full article

Based on the impact of industry extreme return on the attention of institutional investors, taking Chinese A-share listed companies from 2011 to 2020 as a sample, this paper empirically tests the relationship between institutional investors’ distraction and executive compensation stickiness based on multiple regression analysis. The study finds that institutional investors’ distraction promotes the executive compensation stickiness, which is more significant in the group of pressure-resistant institutional investors. The mechanism test finds that based on the governance effect, information effect and psychological effect, corporate external governance, stock price information content and management anxiety play a partial intermediary role between institutional investors’ distraction and executive compensation stickiness. The moderating effect finds that the level of corporate internal governance and managerial overconfidence will weaken the impact of institutional investors’ distraction on executive compensation stickiness. In addition, the distraction behavior in non-state-owned and western companies has a more significant economic impact. Full article

In the post-pandemic era, companies are facing challenges in their business development and may pay fewer attention to their sustainable development performance, whereas the investors are looking for better corporate sustainable development. Using a sample of Chinese listed companies during 2010–2018, this paper empirically examines the relation between corporate sustainable development performance, investor sentiment, and managerial overconfidence with econometric tools such as panel data regression and S-GMM estimation. Three kinds of corporate sustainable development activities as measured by Corporate Social Responsibility (CSR) indexes, including consumer rights, employee benefits, and environmental protection, are proved to have a positive impact on investor sentiment. Compared to the SME and GEM Board, investor sentiment in the Main Board is less affected by corporate sustainable development. Furthermore, investor’s high sentiment leads to high managerial confidence in the SME and GEM Board, and managerial overconfidence is self-correcting over time. This paper illustrates why maintaining good corporate sustainable development performance is beneficial for listed companies from a new perspective. Full article

The present study investigates the relationship between management characteristics (managerial entrenchment, CEO narcissism, overconfidence, board effort, real and accrual-based earnings management) and the audit report readability of listed firms. In other words, this paper seeks to answer the question of “whether management characteristics can have a favourable effect on the audit report readability or not.” The multivariate regression model is used for this study. Research hypotheses were also examined using a sample of 1004 observations on the Tehran Stock Exchange during 2012–2018 and by employing multiple regression patterns based on a panel data technique and fixed effects model. The results show a negative and significant relationship between managerial entrenchment and real and accrual-based earnings management and the audit report readability, based on the FOG index, and a positive and significant relationship between management narcissism, CEO overconfidence, and board effort and the audit report readability, based on the FOG index. Moreover, a negative and significant relationship exists between management entrenchment, CEO overconfidence, real and accrual-based earnings management, and audit report readability based on text length and Flesch indices. A positive and significant relationship was evident between CEO narcissism and board effort and audit report readability based on the same indices. Besides, research models were also examined for more confidence using other additional methods, including FE, T + 1, ABB, and GMM, which confirm the study’s preliminary results. Since the present study is the first paper to investigate such a topic in the emergent markets, it provides valuable information about intrinsic and acquisitive characteristics of management for users, analysts, and legal institutions that contribute significantly to financial statement readability. Full article

Agreed upon by the UN member states, Agenda 2030 assumes joint action for long-term sustainable development. These actions are focused on the implementation of 17 Sustainable Development Goals (SDGs), where actions are assumed to lead to the suppression of negative externalities of human activity. It is stressed that the objectives of sustainable development can only be achieved through deep institutional changes in most dimensions of the economy, including the entrepreneurship dimension. Entrepreneurship plays a pivotal role in the sustainable transformation of the community, as the related activities of companies are the source of the desired structural changes. Entrepreneurial projects make the biggest contribution to the objectives of sustainable development through research and development, investment in new technologies, and innovation. The biggest threat to sustainable entrepreneurship is firms’ aggressive corporate financial strategy, which most often results from CEO overconfidence and aggressive financial behavior. The aim of the article is to indicate differences in corporate financial strategies regarding the status of the company (family or non-family) and CEO characteristics (overconfident or non-overconfident). The fulfilment of this aim by analyzing a selected EU member country (Poland) found more aggressive behavior of overconfident CEOs in non-family firms. It was also found that family firms are a fairly coherent group of companies that implement a more conservative corporate financial strategy regardless of CEO characteristics. We can state that family power can curb CEO overconfidence and its impact on aggressive financial strategy. This means that family firms are much more able to create sustainable entrepreneurship and contribute to Sustainable Development Goals (SDGs) within a market framework. Full article

This paper aims to examine whether and to what extent overconfident CEOs affect Australian real estate investment trusts’ (A-REITs) property investment activities during their tenure as the CEO of A-REITs, covering the period 2000–2019. A-REITs’ property investment and disposal activities are separately modelled against CEOs shares in their companies (an indicator of CEO overconfidence), as well as other controlled variables. We found that around 68% of A-REIT CEOs are overconfident over the study period. However, our empirical results also indicated that CEO overconfidence did not have a profound impact on A-REITs’ investment activities, either property acquisitions or disposals. This could be explained by high corporate governance of A-REITs. Specifically, Australian construction and property companies are the leading market players in sustainability. As publicly quoted companies, listed property and construction companies, particularly A-REITs could be exposed to various managerial issues, including corporate CEO overconfidence and its influence on the investment decision-making process. However, this managerial issue could be minimized via an enhancement of corporate governance that is a key pillar of sustainability. The mitigation of corporate overconfidence and implementation of corporate governance mechanisms makes REITs more accountable to their investors. The implications of the findings have also been discussed. Full article

This study examines the relationship between CEO overconfidence, environment, social, and governance investments, and firm value. Drawing on insights from upper echelon and agency theory, greater female representation on boards is expected to act as an independent monitoring mechanism to control and reconcile CEO overconfidence which leads to enhancement of corporate value induced by environment, social, and governance investments. Empirical evidence in this study finds that, on average, overconfident managers tend to engage in ESG investments in South Korea. Furthermore, in firms with high environment, social, and governance investments, the negative association between CEO overconfidence and firm value is mitigated, showing that environment, social, and governance investments are effective moderators in controlling and constraining managerial overconfidence. Finally, we find that the joint impact of CEO overconfidence and environment, social, and governance investments on corporate value is distinctive in firms with female board representation. Taken together, we find that negative effects associated with CEO overconfidence can be alleviated by the role of female leadership that links corporate environment, social, and governance investments to firm value. Full article