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Does import competition from China discipline overconfident CEOs in U.S. firms?

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  • Chen, Sheng-Syan
  • Peng, Shu-Cing
  • Yeh, Chia-Wei

Abstract

We examine how import competition from Chinese firms influences the behavior and investment performance of overconfident CEOs in U.S. firms. We show that the rise of Chinese import competition curbs investment and improves investment value and acquisition performance for firms with overconfident CEOs. Intensified Chinese product competition also reduces incentives for these firms to expand assets, invest out of cash flows, pursue aggressive financial policies, and increase risk exposure, and enhances their incentives to buy back shares. Overall, the evidence suggests that product market competition is an effective external governance mechanism for curbing the adverse effects of managerial overconfidence.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:quaeco:v:89:y:2023:i:c:p:277-297
    DOI: 10.1016/j.qref.2023.04.005
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    More about this item

    Keywords

    CEO overconfidence; Chinese import competition; Corporate investments; Investment value; Investment-cash flow sensitivity; Risk taking; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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