What Is CEO Overconfidence? Evidence from Executive Assessments
AbstractWe use detailed assessments of CEO personalities to explore the option-based measure of
CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely
used in the behavioral corporate finance and economics literatures. Longholder is significantly
related to several specific characteristics and is negatively related to general ability.
These relations also hold for overconfidence measures derived from CEOs’ earnings guidance.
Investment-cash flow sensitivities are larger for both Longholder and less able CEOs.
Overall, Longholder CEOs have many of the same characteristics traditionally associated
with overconfident individuals, including lower general ability, supporting the interpretation
of this measure as reflecting overconfidence.