Chief financial officer overconfidence and stock price crash risk

Qiao, Lu; Adegbite, Emmanuel; Nguyen, Tam Huy

doi:10.1016/j.irfa.2022.102364

Authors

Lu Qiao

EMMANUEL ADEGBITE EMMANUEL.ADEGBITE@NOTTINGHAM.AC.UK
Professor in Accounting and Corporate Governance

TAM NGUYEN TAM.NGUYEN@NOTTINGHAM.AC.UK
Assistant Professor in Accounting

Abstract

Numerous studies have shown the prevalence of overconfidence among Chief Financial Officers (CFOs). Surprisingly, the real effect of CFO overconfidence is under-researched. Using data from a large sample of US-listed firms over the period 1993–2019 and adopting an eclectic theoretical approach, we find that overconfident CFOs are more likely to increase stock price crash risk than non-overconfident CFOs through risk-taking and bad news hoarding. These findings pass a series of robustness tests. Furthermore, departing from most overconfident studies that merely examine one type of top managers (i.e., Chief Executive Officer (CEO)), we consider the influence of CEO and CFO overconfidence jointly. Interestingly, we find that CFO overconfidence outweighs CEO overconfidence in influencing stock price crash risk. Moreover, the overconfidence effect is intensified when overconfident CFOs collaborate with overconfident CEOs, thus raising stock price crash risk. However, stronger governance and a transparent information environment constrain overconfident CFOs' effect on stock price crash risk. Overall, our findings highlight the importance of CFO overconfidence in determining stock return tail risks.

Citation

Qiao, L., Adegbite, E., & Nguyen, T. H. (2022). Chief financial officer overconfidence and stock price crash risk. International Review of Financial Analysis, 84, Article 102364. https://doi.org/10.1016/j.irfa.2022.102364

Journal Article Type	Article
Acceptance Date	Sep 2, 2022
Online Publication Date	Sep 13, 2022
Publication Date	Nov 1, 2022
Deposit Date	Sep 7, 2022
Publicly Available Date	Mar 14, 2024
Journal	International Review of Financial Analysis
Print ISSN	1057-5219
Publisher	Elsevier
Peer Reviewed	Peer Reviewed
Volume	84
Article Number	102364
DOI	https://doi.org/10.1016/j.irfa.2022.102364
Keywords	Economics and Econometrics; Finance
Public URL	https://nottingham-repository.worktribe.com/output/10912942
Publisher URL	https://www.sciencedirect.com/science/article/pii/S1057521922003143