Managerial Overconfidence Effects on Risk-Taking and Performance

Overconfidence occurs when people consider their abilities more than what they are. Overconfident managers overestimate their abilities in financial decision makings. Managerial overconfidence may affect a firm policies and decisions. This study is aimed to investigate the effects of managerial overconfidence on firm’s risk-taking and performance. This study uses multivariate regression model and panel data method to test the hypothesis. Independent variable is managerial overconfidence measured by 2 proxies based on investment. Dependent variables are risk-taking (Stock return SD and operating cash flow SD) and performance (ROA, ROE, and Qtobin ratio). The sample includes 150 firms listed in Tehran Stock Exchange during 2011-2015. The results show that managerial overconfidence has no effects on risk-taking and performance.