The informational role of overconfident CEOs

• Main Authors: WEI, Chi Shen, ZHANG, Lei
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Overconfident CEOs; Information Asymmetry; Cost of Capital; Short Interest; Finance and Financial Management; Leadership Studies; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6415; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7414/viewcontent/Info_Role_Overconfident_CEO_2018_wp.pdf
• Institution: Singapore Management University

We study how overconfident CEOs communicate with the market and whether this has implications on the firm’s information environment. Textual analysis reveals that overconfident CEOs communicate using less negative tone in their 10K/Q filings. Our evidence suggests that overconfident CEOs provide market participants with more value-relevant information as sell-side analysts make more accurate forecasts of their firm’s future earnings. Consistent with a reduction in asymmetric information, implied cost of equity capital is lower. However, not all investors benefit as the information advantage of short sellers disappears in the stocks of overconfident CEOs.