Self-attribution of overconfident CEOs and asymmetric investment-cash flow sensitivity

Abstract

In this paper, we examine whether overconfidence coupled with a self-attribution bias affects the investment decisions of top corporate managers. First, overconfidence of chief executive officers appears to lead to the downward rigidity of investment-cash flow sensitivity. Additionally, overconfidence intensified by managerial self-attribution exacerbates the stickiness of investment-cash flow sensitivity. These results hold in both financially unconstrained and constrained firms with stronger results in the former. Overall, our findings are in line with the literature that lends support to the excessive investment commitment of overconfident managers.