Associate Professor of Strategy
CEO Overconfidence; Corrective Feedback; Strategic Decision Making; Management Forecast Accuracy; Managerial cognition; Corporate Governance; Auditing, Risk Control and Performance; Corporate Governance; Board Process and Remuneration at the Top;
JOURNAL ARTICLE | Strategic Management Journal | 36 | October 2015
Making the Same Mistake all Over Again: CEO Overconfidence and Corporate Resistance to Corrective Feedback
Firms often make mistakes, from simple manufacturing overruns all the way to catastrophic blunders. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future.In this paper, the authors explore an important but understudied influence on firms’ responses to corrective feedback – a CEO’s level of overconfidence. Using multiple distinct measures of overconfidence and the empirical context of voluntary corporate earnings forecasts, the authors find strong, robust evidence that firms led by overconfident CEOs are less responsive to corrective feedback in improving management forecast accuracy.The authors further show that this relationship is moderated by prior forecast error valence, time horizon, and managerial discretion.