In this paper, we examine whether overconfidence coupled with a self-attribution bias affects the investment decisions of top corporate managers. First, overconfidence of chief executive officers appears to lead to the downward rigidity of investment-cash flow sensitivity. Additionally, overconfidence intensified by managerial self-attribution exacerbates the stickiness of investment-cash flow sensitivity. These results hold in both financially unconstrained and constrained firms with stronger results in the former. Overall, our findings are in line with the literature that lends support to the excessive investment commitment of overconfident managers.
Bibliographical noteFunding Information:
Part of this research was conducted while Choi was a visiting scholar at the Samuel Curtis Johnson Graduate School of Management, Cornell University, funded by the grants provided by the Fulbright Scholarship Program and Ewha Womans University. The authors equally contributed to this work. We thank Warren Bailey, Hamid Beladi (Editor), Joung Hwa Choi, Andrew Karolyi, Young Han Andy Kim, and anonymous referees. Standard disclaimer rules apply and all errors are of our own.
© 2017 Elsevier Inc.
- Investment-cash flow sensitivity
- Self-attribution bias