Overconfidence, CEO Selection, and Corporate Governance

  title={Overconfidence, CEO Selection, and Corporate Governance},
  author={A. Goel and A. Thakor},
  journal={SEIN Corporate Governance & Accountability eJournal},
  • A. Goel, A. Thakor
  • Published 2006
  • Business
  • SEIN Corporate Governance & Accountability eJournal
  • We develop a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEO under "value-maximizing" corporate governance. Moreover, a risk-averse CEO's overconfidence enhances firm value up to a point, but the effect is "nonmonotonic" and differs from that of lower risk aversion. Overconfident CEOs also underinvest in information production. The board fires both excessively… CONTINUE READING
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