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Are More Financial Sophisticated Executives Overconfidents and Optimists?

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  • Cassiana Bortoli
  • Rodrigo Soares

Abstract

Competitiveness in top executive job market, and the companies search for Chief Executive Officer (CEO) qualification may lead that professional to overestimate his abilities and/or to underestimate the risks in decision making process, increasing his propensity to present the cognitive biases of overconfidence and optimism (ECO). Hence, the present work aimed to identify the relationship among the Financial Sophistication of CEO's and the Cognitive Biases Overconfidence and Optimism. The sample approached 179 companies listed at BM&FBovespa during the periods from 2011 to 2015, totaling 810 observations. We used the principal components analysis to build three financial sophistication indexes: Academic Financial Sofistication Index (ISFA), Professional Financial Sofistication Index (ISF), and Financial Sophistication Index (ISF), which is a composition of the first two. We perform Data analysis using a multivariate linear regression method, to test the relations. The results pointed that despite the ISF is not related to the ECO biases, the ISFA was positively and significantly related to the ECO, indicating that CEOs with international training, financial training and experience in the field are likely to present deviations cognitive ECO.

Suggested Citation

  • Cassiana Bortoli & Rodrigo Soares, 2019. "Are More Financial Sophisticated Executives Overconfidents and Optimists?," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 23(2), pages 268-287.
    • Handle: RePEc:abg:anprac:v:23:y:2019:i:2:1326
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