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CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom

journal contribution
posted on 21.12.2020, 09:39 by Jingsi Leng, Aydin Ozkan, Neslihan Ozkan, Agnieszka Trzeciakiewicz
This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.

History

School

  • Business and Economics

Department

  • Business

Published in

The European Journal of Finance

Publisher

Routledge

Version

AM (Accepted Manuscript)

Rights holder

© Informa UK Limited, trading as Taylor & Francis Group

Publisher statement

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 24 Jan 2021, available online: http://www.tandfonline.com/10.1080/1351847X.2021.1876131.

Acceptance date

16/12/2020

Publication date

2021-01-24

Copyright date

2021

ISSN

1351-847X

eISSN

1466-4364

Language

en

Depositor

Dr Jingsi Leng Leng. Deposit date: 19 December 2020