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The effect of CEO overconfidence on turnover abnormal returns

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  • Yilmaz, Neslihan
  • Mazzeo, Michael A.

Abstract

This paper investigates the effect of managerial overconfidence on the market reaction to a CEO change within the firm. Some studies provide empirical evidence that irrational managers may engage in actions that can be detrimental to firm value while others suggest that an overconfident manager can increase firm value. We control for different turnover, governance and firm characteristics, and analyze the abnormal returns of S&P 500 firms in the event of a CEO turnover. We find that when an overconfident CEO is appointed to the firm there is a significant negative impact on firm’s stock price. Our results support the arguments against overconfident CEOs due to the possible future actions of the CEO that may decrease firm value.

Suggested Citation

  • Yilmaz, Neslihan & Mazzeo, Michael A., 2014. "The effect of CEO overconfidence on turnover abnormal returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 3(C), pages 11-21.
    • Handle: RePEc:eee:beexfi:v:3:y:2014:i:c:p:11-21
    DOI: 10.1016/j.jbef.2014.07.001
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    Citations

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    Cited by:

    1. Liu Ping & Hosain Md Sajjad & Li Liyan, 2019. "Does the compensation gap between executives and staffs influence future firm performance? The moderating roles of managerial power and overconfidence," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 55(4), pages 287-318, December.
    2. Iskandar-Datta, Mai & Shekhar, Shriya, 2020. "Do insider CFOs deliver better acquisition performance?," Journal of Business Research, Elsevier, vol. 118(C), pages 240-252.
    3. He, Liyu & He, Rong & Evans, Elaine, 2020. "Board influence on a firm’s long-term success: Australian evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    4. Cho-Min Lin & Ming-Chung Chang & Yi-Hui Chao, 2022. "The Forced Turnover Effect on an Overconfident CEO: Evidence From Taiwan-Listed Firms," SAGE Open, , vol. 12(1), pages 21582440221, March.
    5. Li-Chen Cheng & Wei-Ting Lu & Benjamin Yeo, 2023. "Predicting abnormal trading behavior from internet rumor propagation: a machine learning approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-23, December.

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