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The case for humble expectations: CEO humility and market performance

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  • Oleg V. Petrenko
  • Federico Aime
  • Tessa Recendes
  • Jeffrey A. Chandler

Abstract

Research Summary In this study, we investigate the effect of chief executive officer (CEO) humility on firm's market performance. We argue and find that firms with more humble CEOs will have better market performance but not because they actually perform better but, rather, because they benefit from an expectation discount in the market. Specifically, we show that, all else equal, financial analysts announce lower earnings per share expectations for firms with more humble CEOs. This expectation discount sets the stage for those firms to meet or beat analysts' expectations resulting in improved market performance for firms with humble CEOs. We find support for our ideas with a sample of Standard & Poor's (S&P) 500 CEOs, operationalizing CEO humility with a videometric technique. Managerial Summary In this study, we investigate the effect of CEO humility on firm's market performance. We show that firms with more humble CEOs will outperform other firms in the market because financial analysts tend to set lower market expectations for firms with more humble CEOs increasing the probability that they will outperform those expectations. Rather counterintuitively, these firms do not have better market performance because they perform better but because they face lower expectations. Ultimately, the study demonstrates the importance of CEO characteristics for external evaluations and perceptions about the firm with significant effects on investment performance.

Suggested Citation

  • Oleg V. Petrenko & Federico Aime & Tessa Recendes & Jeffrey A. Chandler, 2019. "The case for humble expectations: CEO humility and market performance," Strategic Management Journal, Wiley Blackwell, vol. 40(12), pages 1938-1964, December.
    • Handle: RePEc:bla:stratm:v:40:y:2019:i:12:p:1938-1964
    DOI: 10.1002/smj.3071
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    8. Sun Hyun Park & Sung Hun (Brian) Chung & Nandini Rajagopalan, 2021. "Be careful what you wish for: CEO and analyst firm performance attributions and CEO dismissal," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1880-1908, October.
    9. Jeffrey A. Chandler & Tsutomu Doiguchi & Oleg V. Petrenko, 2022. "Revisiting the Effect of Internationalization on Firm Governance: A Replication and Extension Study," Management International Review, Springer, vol. 62(3), pages 351-391, June.
    10. Bao, Xin & Sun, Baiqing & Han, Meini & Lin, Han & Lau, Raymond Y.K., 2023. "Quantifying the impact of CEO social media celebrity status on firm value: Novel measures from digital gatekeeping theory," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    11. Waddingham, Jacob A. & Hamrick, Alexander B. & Zachary, Miles A., 2023. "Addressing the entrepreneur in the room: Entrepreneurial exit and impression management tactics in the employment interview context," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    12. Qiuzhen Ren & Yingjie Xu & Ranran Zhou & Jingdong Liu, 2020. "Can CEO’s Humble Leadership Behavior Really Improve Enterprise Performance and Sustainability? A Case Study of Chinese Start-Up Companies," Sustainability, MDPI, vol. 12(8), pages 1-25, April.
    13. Hrazdil, Karel & Li, Xin & Suwanyangyuan, Nattavut, 2022. "CEO happiness and forecasting," Global Finance Journal, Elsevier, vol. 52(C).
    14. Johannes Brunzel & Daniel Ebsen, 2023. "The role of humility in Chief Executive Officers: a review," Review of Managerial Science, Springer, vol. 17(4), pages 1487-1532, May.
    15. Tessa Recendes & Federico Aime & Aaron D. Hill & Oleg V. Petrenko, 2022. "Bargaining your way to success: The effect of Machiavellian chief executive officers on firm costs," Strategic Management Journal, Wiley Blackwell, vol. 43(10), pages 2012-2041, October.
    16. Han, Yu & Chi, Wei & Zhou, Jinyi, 2022. "Prosocial imprint: CEO childhood famine experience and corporate philanthropic donation," Journal of Business Research, Elsevier, vol. 139(C), pages 1604-1618.
    17. Chandler, Jeffrey A. & Short, Jeremy C. & Hasan, Md Kamrul & Fan, Gang, 2022. "Founding team characteristics and the pursuit of social motives: A role theory perspective," Journal of Business Venturing Insights, Elsevier, vol. 17(C).

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