IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v46y2022ipas1544612321003160.html
   My bibliography  Save this article

Terrorist attacks, CEO overconfidence, and CEO compensation

Author

Listed:
  • Hwang, Yunji
  • Hun Han, Seung

Abstract

This study examines how terrorist attacks and CEO confidence levels impact CEO compensation structures. Terrorist attacks in the United States from 1999 to 2018 are examined as negative exogenous shocks affecting CEO compensation. The findings indicate that overconfident CEOs of affected firms are likely to receive higher equity compensation than overconfident CEOs of firms located far from attacks, while non-overconfident CEOs of affected firms receive higher cash compensation than CEOs located far from attacks. This study contributes to the literature by examining how CEO compensation levels and structures vary according to nonfinancial shocks and CEO confidence levels.

Suggested Citation

  • Hwang, Yunji & Hun Han, Seung, 2022. "Terrorist attacks, CEO overconfidence, and CEO compensation," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003160
    DOI: 10.1016/j.frl.2021.102275
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612321003160
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2021.102275?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
    2. Florian S. Peters & Alexander F. Wagner, 2014. "The Executive Turnover Risk Premium," Journal of Finance, American Finance Association, vol. 69(4), pages 1529-1563, August.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. David Hirshleifer & Angie Low & Siew Hong Teoh, 2012. "Are Overconfident CEOs Better Innovators?," Journal of Finance, American Finance Association, vol. 67(4), pages 1457-1498, August.
    5. Itzhak Ben-David & John R. Graham, 2013. "Managerial Miscalibration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1547-1584.
    6. Faheem Aslam & Hyoung-Goo Kang, 2015. "How Different Terrorist Attacks Affect Stock Markets," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(6), pages 634-648, December.
    7. Kenneth R. Ahern, 2018. "The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks," NBER Working Papers 24331, National Bureau of Economic Research, Inc.
    8. Anand M. Goel & Anjan V. Thakor, 2008. "Overconfidence, CEO Selection, and Corporate Governance," Journal of Finance, American Finance Association, vol. 63(6), pages 2737-2784, December.
    9. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    10. Dennis Dittrich & Werner Guth & Boris Maciejovsky, 2005. "Overconfidence in investment decisions: An experimental approach," The European Journal of Finance, Taylor & Francis Journals, vol. 11(6), pages 471-491.
    11. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic consequences of terror: theory and the case of Israel," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 971-1002, July.
    12. Abadie, Alberto & Gardeazabal, Javier, 2008. "Terrorism and the world economy," European Economic Review, Elsevier, vol. 52(1), pages 1-27, January.
    13. Simon Gervais & J. B. Heaton & Terrance Odean, 2011. "Overconfidence, Compensation Contracts, and Capital Budgeting," Journal of Finance, American Finance Association, vol. 66(5), pages 1735-1777, October.
    14. Humphery-Jenner, Mark & Lisic, Ling Lei & Nanda, Vikram & Silveri, Sabatino Dino, 2016. "Executive overconfidence and compensation structure," Journal of Financial Economics, Elsevier, vol. 119(3), pages 533-558.
    15. Kolasinski, Adam C. & Li, Xu, 2013. "Can Strong Boards and Trading Their Own Firm’s Stock Help CEOs Make Better Decisions? Evidence from Acquisitions by Overconfident CEOs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(4), pages 1173-1206, August.
    16. Tingbani, Ishmael & Okafor, Godwin & Tauringana, Venancio & Zalata, Alaa Mansour, 2019. "Terrorism and country-level global business failure," Journal of Business Research, Elsevier, vol. 98(C), pages 430-440.
    17. Hyunseob Kim & Howard Kung, 2017. "The Asset Redeployability Channel: How Uncertainty Affects Corporate Investment," Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 245-280.
    18. Dirk Brounen & Jeroen Derwall, 2010. "The Impact of Terrorist Attacks on International Stock Markets," European Financial Management, European Financial Management Association, vol. 16(4), pages 585-598, September.
    19. Campbell, T. Colin & Gallmeyer, Michael & Johnson, Shane A. & Rutherford, Jessica & Stanley, Brooke W., 2011. "CEO optimism and forced turnover," Journal of Financial Economics, Elsevier, vol. 101(3), pages 695-712, September.
    20. Dai, Yunhao & Rau, P. Raghavendra & Stouraitis, Aris & Tan, Weiqiang, 2020. "An ill wind? Terrorist attacks and CEO compensation," Journal of Financial Economics, Elsevier, vol. 135(2), pages 379-398.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lu, Jing & Ho, Keng-Yu & Ho, Po-Hsin & Ko, Kuan-Cheng, 2023. "CEO overconfidence, lottery preference and the cross-section of stock returns," Finance Research Letters, Elsevier, vol. 54(C).
    2. Bai, Min & Li, Shihe & Xu, Limin & Yu, Chia-Feng (Jeffrey), 2022. "How do overconfident CEOs respond to regulation fair disclosure? Evidence from financial report readability," Finance Research Letters, Elsevier, vol. 50(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Sheng-Syan & Peng, Shu-Cing & Yeh, Chia-Wei, 2023. "Does import competition from China discipline overconfident CEOs in U.S. firms?," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 277-297.
    2. Andreou, Panayiotis C. & Doukas, John A. & Koursaros, Demetris & Louca, Christodoulos, 2019. "Valuation effects of overconfident CEOs on corporate diversification and refocusing decisions," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 182-204.
    3. Lai, Yi-Hsun & Tai, Vivian W., 2019. "Managerial overconfidence and directors' and officers' liability insurance," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Lai, Shaojie & Li, Xiaorong & Chan, Kam C., 2021. "CEO overconfidence and labor investment efficiency," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    5. Lee, Jin-Ping & Lin, Edward M.H. & Lin, James Juichia & Zhao, Yang, 2020. "Bank systemic risk and CEO overconfidence," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    6. Hwang, Hyoseok (David) & Kim, Hyun-Dong & Kim, Taeyeon, 2020. "The blind power: Power-led CEO overconfidence and M&A decision making," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    7. Kaplan, Steven N. & Sørensen, Morten & Zakolyukina, Anastasia A., 2022. "What is CEO overconfidence? Evidence from executive assessments," Journal of Financial Economics, Elsevier, vol. 145(2), pages 409-425.
    8. Sen, Rik & Tumarkin, Robert, 2015. "Stocking up: Executive optimism, option exercise, and share retention," Journal of Financial Economics, Elsevier, vol. 118(2), pages 399-430.
    9. Johannes Brunzel, 2021. "Overconfidence and narcissism among the upper echelons: a systematic literature review," Management Review Quarterly, Springer, vol. 71(3), pages 585-623, July.
    10. Banerjee, Suman & Dai, Lili & Humphery-Jenner, Mark & Nanda, Vikram, 2020. "Governance, board inattention, and the appointment of overconfident CEOs," Journal of Banking & Finance, Elsevier, vol. 113(C).
    11. Banerjee, Suman & Humphery-Jenner, Mark & Nanda, Vikram, 2018. "Does CEO bias escalate repurchase activity?," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 105-126.
    12. Chen, Sheng-Syan & Ho, Keng-Yu & Ho, Po-Hsin & Nie, Wei-Ying, 2022. "CEO overconfidence and bondholder wealth effects: Evidence from mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 77(C).
    13. Rashid Zaman & Nader Atawnah & Muhammad Nadeem & Stephen Bahadar & Irfan Haider Shakri, 2022. "Do liquid assets lure managers? Evidence from corporate misconduct," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1425-1453, July.
    14. Kim, Y. Han (Andy) & Park, Junho & Shin, Hojong, 2022. "CEO facial masculinity, fraud, and ESG: Evidence from South Korea," Emerging Markets Review, Elsevier, vol. 53(C).
    15. Croci, Ettore & Petmezas, Dimitris, 2015. "Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 1-23.
    16. Huang, Ronghong & Tan, Kelvin Jui Keng & Faff, Robert W., 2016. "CEO overconfidence and corporate debt maturity," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 93-110.
    17. Tung Nguyen & Dimitris Petmezas & Nikolaos Karampatsas, 2023. "Does Terrorism Affect Acquisitions?," Management Science, INFORMS, vol. 69(7), pages 4134-4168, July.
    18. Lin, Tse-Chun & Pursiainen, Vesa, 2023. "Gender differences in reward-based crowdfunding," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    19. Otto, Clemens A., 2014. "CEO optimism and incentive compensation," Journal of Financial Economics, Elsevier, vol. 114(2), pages 366-404.
    20. Deshmukh, Sanjay & Goel, Anand M. & Howe, Keith M., 2021. "Do CEO beliefs affect corporate cash holdings?," Journal of Corporate Finance, Elsevier, vol. 67(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.