Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies

Joon Mahn Lee, Byoung Hyoun Hwang, Hailiang Chen

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

Research summary: We provide evidence that founder chief executive officers (CEOs) of large S&P 1500 companies are more overconfident than their nonfounder counterparts (“professional CEOs”). We measure overconfidence via tone of CEO tweets, tone of CEO statements during earnings conference calls, management earnings forecasts, and CEO option-exercise behavior. Compared with professional CEOs, founder CEOs use more optimistic language on Twitter and during earnings conference calls. In addition, founder CEOs are more likely to issue earnings forecasts that are too high; they are also more likely to perceive their firms to be undervalued, as implied by their option-exercise behavior. We provide evidence that, to date, investors appear unaware of this “overconfidence bias” among founders. Managerial summary: This article helps to explain why firms managed by founder chief executive officers (CEOs) behave differently from those managed by professional CEOs. We study a sample of S&P 1500 firms and find strong evidence that founder CEOs are more overconfident than professional CEOs. To date, investors appear unaware of this overconfidence bias among founders. Our study should help firm stakeholders, including investors, employees, suppliers, and customers, put the statements and actions of founder CEOs in perspective. Our study should also help members of corporate boards make more informed decisions about whether to retain (or bring back) founder CEOs or hire professional CEOs.

Original languageEnglish
Pages (from-to)751-769
Number of pages19
JournalStrategic Management Journal
Volume38
Issue number3
DOIs
Publication statusPublished - 2017 Mar 1
Externally publishedYes

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Chief executive officer
Investors
Overconfidence
Conference calls
Exercise
Stakeholders
Suppliers
Management earnings forecasts
Corporate boards
Twitter
Employees
Earnings forecasts
Language

Keywords

  • corporate governance
  • founder CEOs
  • overconfidence
  • professional CEOs

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

Cite this

Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies. / Lee, Joon Mahn; Hwang, Byoung Hyoun; Chen, Hailiang.

In: Strategic Management Journal, Vol. 38, No. 3, 01.03.2017, p. 751-769.

Research output: Contribution to journalArticle

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