Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile
Reyes T., Vassolo R., Kausel E., Pena D., Zhang S. (2020)

Does overconfidence pay off when things go well? CEO overconfidence, firm performance, and the business cycle

Revista : Strategic Organization
Tipo de publicación : ISI Ir a publicación


We investigate the moderating effect of the business cycle on the positive relationship between CEO overconfidence and firm performance. We propose that the expansion years of the business cycle enhance the positive impact of overconfident CEOs on firms’ performance. However, this effect is reduced during recession periods. We analyze the effect of CEO overconfidence on the Return on Equity of publicly listed US firms from 1992 to 2015, a period that includes the bursting of the dot-com bubble in 2001 and the Great Recession of 2008–2009. The empirical findings support the hypotheses that expansion periods increase the positive relationship between overconfident CEOs and firms’ performance, but this positive effect weakens during recessions.