CEO overconfidence and management forecasting. (2011)

“Overconfident CEOs are more likely to issue optimistically biased forecasts because they overestimate their ability to affect their financial results and/or they underestimate the probability of random events

Hribar, P., University of Iowa – Henry B. Tippie College of Business
Yang, H., University of Pennsylvania – The Wharton School

Chief Executives should be confident and most likely have got to the C-suite because of others’ confidence in their skills. That confidence, however, should not alter the public appearance of the company. This study finds that CEO overconfidence may exaggerate the health of the company, thus skewing investor and analyst perceptions higher than reality.

The researchers found that CEOs who can be described as overconfident are more likely to have an optimistic bias when forecasting the company’s future earnings. These CEOs are 10 percent more likely to overestimate their future earnings than CEOs who are not considered overconfident.

Professors Yang and Hribar write, “Overconfident CEOs are more likely to issue optimistically biased forecasts because they overestimate their ability to affect their financial results and/or they underestimate the probability of random events.”

Access the full paper here: CEO overconfidence and management forecasting