TY - JOUR
T1 - CEO Overconfidence and overinvestment under product market competition
AU - Yu, Chia Feng Jeffrey
N1 - Publisher Copyright:
© 2014 John Wiley & Sons, Ltd.
PY - 2014/12/1
Y1 - 2014/12/1
N2 - How does product market competition influence whether CEOs with greater or lower levels of overconfidence are hired and whether CEOs overinvest in innovation? In a Cournot model in which firms hire a CEO to take charge of research and development (R&D) investment and production decisions, this paper shows that CEO overconfidence and overinvestment can be explained as an equilibrium outcome. More importantly, the intensity of product market competition and the equilibrium CEO overconfidence level (and R&D investment) exhibit an inverted U-shaped relationship. As the product market tends toward perfect competition, all firms hire a realistic CEO and do not overinvest.
AB - How does product market competition influence whether CEOs with greater or lower levels of overconfidence are hired and whether CEOs overinvest in innovation? In a Cournot model in which firms hire a CEO to take charge of research and development (R&D) investment and production decisions, this paper shows that CEO overconfidence and overinvestment can be explained as an equilibrium outcome. More importantly, the intensity of product market competition and the equilibrium CEO overconfidence level (and R&D investment) exhibit an inverted U-shaped relationship. As the product market tends toward perfect competition, all firms hire a realistic CEO and do not overinvest.
UR - http://www.scopus.com/inward/record.url?scp=84911404603&partnerID=8YFLogxK
U2 - 10.1002/mde.2662
DO - 10.1002/mde.2662
M3 - Article
AN - SCOPUS:84911404603
SN - 0143-6570
VL - 35
SP - 574
EP - 579
JO - Managerial and Decision Economics
JF - Managerial and Decision Economics
IS - 8
ER -
