Chief financial officer overconfidence and stock price crash risk

Lu, Qiao, Adegbite, Emmanuel, and Nguyen, Tam Huy (2022) Chief financial officer overconfidence and stock price crash risk. International Review of Financial Analysis, 84. 102364.

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Numerous studies have shown the prevalence of overconfidence among Chief Financial Officers (CFOs). Surprisingly, the real effect of CFO overconfidence is under-researched. Using data from a large sample of US-listed firms over the period 1993-2019 and adopting an eclectic theoretical approach, we find that overconfident CFOs are more likely to increase stock price crash risk than non-overconfident CFOs through risk-taking and bad news hoarding. These findings pass a series of robustness tests. Furthermore, departing from most overconfident studies that merely examine one type of top managers (i.e., Chief Executive Officer (CEO)), we consider the influence of CEO and CFO overconfidence jointly. Interestingly, we find that CFO overconfidence outweighs CEO overconfidence in influencing stock price crash risk. Moreover, the overconfidence effect is intensified when overconfident CFOs collaborate with overconfident CEOs, thus raising stock price crash risk. However, stronger governance and a transparent information environment constrain overconfident CFOs’ effect on stock price crash risk. Overall, our findings highlight the importance of CFO overconfidence in determining stock return tail risks.

Item ID: 76107
Item Type: Article (Research - C1)
ISSN: 1873-8079
Keywords: CFO overconfidence, Stock price crash risk, Overconfidence theory, Upper echelons theory, Power circulation theory, False consensus effect theory
Copyright Information: © 2022 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license (
Date Deposited: 27 Sep 2022 23:37
FoR Codes: 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3507 Strategy, management and organisational behaviour > 350701 Corporate governance @ 100%
SEO Codes: 13 CULTURE AND SOCIETY > 1303 Ethics > 130304 Social ethics @ 100%
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