Literature Review Women on boards and in TMTS and firm performance90 probability that these firms pay dividends is lower whereas the probability that they repurchase sha res is higher They tend to use proportionally more long term than short term debt Ben David et al 2007 Malmendier and Tate 2005 find that overcon fident CEOs have a heightened sensitivity of cor porate investment to cash flow especially among equity dependent firms As overconfident executi ves overestimate the returns to their investment projects and show bias against external financing they tend to overinvest when having ample in ternal resources but refrain from investing when having to rely on external funds Thus overconfi dence can indeed account for distortions in corpo rate investment However overconfident managers are open to in vesting their own assets into their company Mal mendier and Tate 2005 even argue that CEOs personal overinvestment in their own companies results only from overconfidence 4 2 6 Potential effects on risk preferences March and Shapira 1987 show that in contradic tion with classical decision theory managers gene rally are unlikely to decide on risk and risk ta king on the basis of carefully calculated probabili ties of possible outcomes The executives use few key values rather than thorough probability calcu lations to assess and express their risk exposure Furthermore they view risk as crucial to success in decision making and risk taking as substantial part of the managerial role Consistent with this view risk is perceived to be manageable and con trollable Contrary to the negative impact of managerial overconfidence and optimism on investment po licy cash flow estimates and capital structure deci sions Gervais et al 2002 identify a positive role of managerial overconfidence and optimism They compare rational rather cautious managers with overconfident optimistic managers According to their findings risk averse rational managers tend to postpone projects in order to analyze options carefully often longer than in shareholders inte rest By contrast overconfident managers unde restimate risks Overconfident and also optimistic managers thus undertake projects quickly The authors draw the conclusion that moderate over confidence and optimism can increase the value of the firm as these managers act in the interest of shareholders more than rational managers do9 4 2 7 Methods for identification and measure ment of CEO overconfidence Scholars in prior research have applied various me thodologies to identify and measure CEO overcon fidence One popular method is content analysis of press coverage relating to the person of interest For instance articles from renowned newspa pers and magazines that relate to the respective person are rated according to their overall tone that is positive or negative Hayward Hambrick 1997 Another possibility is to count words that indicate the presence of optimism and confidence and words with opposite meaning respectively Malmendier et al 2007 The number of articles that portray the respective CEO as overconfident is then compared with the number of articles indica ting opposite characteristics An alternative method is the survey based appro ach A direct survey of top executives allows for application of psychometric personality tests and thus insight into their underlying psychological traits and attitudes Graham Harvey Puri 2013 Previous research considers factors that foster CEO overconfidence and thus enhance the pro bability of its occurrence These are for instance 9 Confirming results are reported by Gervais Heaton Odean 2007 CEO optimism and overconfidence

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 90
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