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The impact of overconfident customers on supplier firm risks

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  • Fang, Yiwei
  • Hasan, Iftekhar
  • Lin, Chih-Yung
  • Sun, Jiong

Abstract

Research has shown that firms with overconfident chief executive officers (CEOs) tend to overinvest and are exposed to high risks due to unrealistically optimistic estimates of their firms’ future performance. This study finds evidence that overconfident CEOs also affect suppliers’ risk taking. Specifically, serving overconfident customers can lead to high supplier risks, measured by stock volatility, idiosyncratic risk, and market risk. The effects are pronounced when customers aggressively invest in research and development (R&D). Our results are robust after addressing self-selection bias and using different CEO overconfidence measures. We also document some real effects of customer CEO overconfidence on suppliers.

Suggested Citation

  • Fang, Yiwei & Hasan, Iftekhar & Lin, Chih-Yung & Sun, Jiong, 2022. "The impact of overconfident customers on supplier firm risks," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 115-133.
    • Handle: RePEc:eee:jeborg:v:197:y:2022:i:c:p:115-133
    DOI: 10.1016/j.jebo.2022.01.005
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    Cited by:

    1. Huang, Yichu & Fan, Yaoyao, 2022. "Risk along the supply chain: Geographic proximity and corporate risk taking," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    CEO overconfidence; Supply chain; firm risk;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • P4 - Political Economy and Comparative Economic Systems - - Other Economic Systems

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