CEO Overconfidence and the COVID-19 Pandemic

54 Pages Posted: 28 Oct 2020 Last revised: 24 Nov 2020

See all articles by Maggie Hu

Maggie Hu

The Chinese University of Hong Kong

Desmond Tsang

McGill University - Desautels Faculty of Management

Wayne Xinwei Wan

University of Cambridge - Department of Land Economy

Date Written: November 22, 2020

Abstract

We examine the impact of CEO overconfidence on firm performance during the COVID-19 pandemic and find that firms with overconfident CEOs exhibit significantly better stock market returns, implying CEO overconfidence helps instill investor confidence during the crisis period. Utilizing a text-based measure of firm-specific exposure to the pandemic, we show that CEO overconfidence substantially mitigates the negative effect of firm exposure to the COVID-19 pandemic. We further show how overconfident CEOs instill confidence by uplifting public sentiment while withholding bad news during the pandemic. However, the impact of CEO overconfidence diminishes when firms are facing ex-ante higher levels of risk with weaker fundamentals. Overall, our finding demonstrates the bright side of CEO overconfidence at times of crises.

Keywords: CEO overconfidence, COVID-19 pandemic, firm exposure, sentiment, bad news hoarding

JEL Classification: G01, G14, M14, I18

Suggested Citation

Hu, Maggie and Tsang, Desmond and Wan, Wayne Xinwei, CEO Overconfidence and the COVID-19 Pandemic (November 22, 2020). Available at SSRN: https://ssrn.com/abstract=3716618 or http://dx.doi.org/10.2139/ssrn.3716618

Maggie Hu

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

HOME PAGE: http://sites.google.com/site/maggiehuresearch/research

Desmond Tsang

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Wayne Xinwei Wan (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://xinweiwan.weebly.com

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