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The cost of overconfidence: how CEO cognitive bias crowds out green innovation

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  • Ma, Nan
  • Yu, Jianglong

Abstract

Although upper echelons theory emphasizes the critical role of executive cognition in strategic decision-making, its underlying mechanisms in the context of sustainable innovation remain unclear. Using data from Chinese listed firms between 2007 and 2022, we find that CEO overconfidence tends to suppress green innovation. This adverse effect intensifies under intense market competition but is mitigated in firms with patient capital. Mechanism analysis reveals that CEO overconfidence leads to excessive risk-taking, which ultimately crowds out resources for green innovation. Our findings suggest that firms should proactively strengthen governance mechanisms to mitigate the strategic distortions arising from executive cognitive bias, while also fostering a financial and governance ecosystem that tolerates long-term risk to advance the green transition.

Suggested Citation

  • Ma, Nan & Yu, Jianglong, 2026. "The cost of overconfidence: how CEO cognitive bias crowds out green innovation," Finance Research Letters, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finlet:v:106:y:2026:i:c:s1544612326008615
    DOI: 10.1016/j.frl.2026.110333
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