Managerial overconfidence, corporate social responsibility activities, and financial constraints

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28 Scopus citations


Managerial overconfidence refers to managers' cognitive bias, according to which they demonstrate unwarranted belief in their own judgments and capabilities. This study provides a new measurement of CEO overconfidence through textual analysis of management discussion and analysis (MD&A) in 10-K documents by making use of the US Securities and Exchange Commission (SEC) EDGAR database. Overconfidence was obtained from "optimism" using the Diction program. From a sample of 19,367 US firms from1994 to 2016, we found that CEO overconfidencewas negatively related to corporate social responsibility (CSR) activities. Since overconfident CEOs are likely to consider CSR activities less important than their own ability, they seem to reduce CSR activities. Also, CSR activities initiated by overconfident CEOs were negatively related to firms' long-term performance. However, CSR activities led to positive long-term performance in firms that were financially constrained. Our findings show that CSR activities undertaken as a result of CEO overconfidence by financially unconstrained firms could be harmful to shareholder value in the long term.

Original languageEnglish
Article number61
Pages (from-to)1-14
Number of pages14
JournalSustainability (Switzerland)
Issue number1
StatePublished - 1 Jan 2020

Bibliographical note

Funding Information:
Funding: This research was supported by the Ewha Womans University scholarship of 2018.

Funding Information:
Acknowledgments: Part of this research was conducted while P.M.S.C. was a visiting scholar at the Samuel Curtis Johnson Graduate School of Management, Cornell University, funded by the grant provided by the Fulbright Scholarship Program.

Publisher Copyright:
© 2019 by the authors.


  • CEO overconfidence
  • CSR activities
  • Financial constraints
  • Long-run performance
  • Optimism


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