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Journal article
CEO overconfidence and the adjustment speed of leverage and cash: Evidence on cash is not the same as negative debt
Empirical economics, Vol.63(2), pp.1081-1108
08/2022
Web of Science ID: WOS:000718215200001
Abstract
Overconfident CEOs speed up (slow down) adjusting firm leverage if it is above (below) target leverage. In addition, overconfident CEOs speed up (slow down) adjusting firm cash holdings if it is below (above) the optimal balance. Our results imply overconfident CEOs are associated with high cash holdings and low leverage. Additional tests suggest that the results do not imply cash and (negative) debt are substitutable. We also find overconfident CEOs sometimes reduce firm leverage unexpectedly. The observation is consistent with the view that overconfident CEOs are strong-willed individuals who dislike being monitored. Thus, besides the tendency to overestimate their ability and underestimate risk, overconfident CEOs are affected by additional aspects of their behavioral traits in decision making.
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Details
- Title
- CEO overconfidence and the adjustment speed of leverage and cash
- Publication Details
- Empirical economics, Vol.63(2), pp.1081-1108
- Resource Type
- Journal article
- Publisher
- Physica-Verlag Gmbh & Co; HEIDELBERG
- Number of pages
- 28
- Copyright
- © 2021, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature
- Identifiers
- WOS:000718215200001; 99381623904606600
- Academic Unit
- Lewis Bear Jr. College of Business; Accounting and Finance
- Language
- English