A Study on CEO Overconfidence Investment Expenditure and Stock Price Crash Risk

Abstract

This study investigates empirically the effect of CEO overconfidence on firm-level investment expenditure and how inefficient investment expenditure affects future stock price crash risk Overconfident managers are prone to undertake negative net-present-value projects because they believe their capability can create profits to the firm Thus overconfident managers tend to hoard bad news and to keep unprofitable projects alive As the result of managers’ overconfident behaviors is reflected on the new investment expenditure of the firm the new investment expenditures of the firm might be inefficient Using a large sample of Taiwanese firms for the period 2004-2017 our empirical evidence shows that new investment expenditures of the company has relation with future stock risk and inefficient new investment expenditures lead to future stock price crash risk This finding implies that inefficient investment increases firm’s future stock price crash risk

Date of Award	2020
Original language	English
Supervisor	Meng-Feng Yen (Supervisor)