CEO Power and Overconfidence and the Firm's Equity

I study the effects of(a)CEO power over the firm's information and decisions and(b)CEO overconfidence about the firm's underlying value on both firm's equity financing and CEO personal stock trading decisions. I hypothesize that an overconfident CEO will reduce stock issues and increase stock repurchases. I also hypothesize that an overconfident CEO will reduce her own sales and increase her purchases of her firm's stocks. Consistent with my hypothesis, I find that a CEO's self-importance, finance and technical education backgrounds and assumption of multiple roles including the president and chairman titles significantly decrease her probability of issuing stocks. I also find that the firm's recent performance,CEO's finance and general education backgrounds and assumption of multiple roles including the president title increase her probability of stock repurchase. I also consistently find that a CEO's assumption of multiple roles and particularly the chairman title has a significant positive impact on her personal trades in stocks and hence her share ownership. This book highlights the relevance of a CEO's traits for both the firm's financing and her personal portfolio decisions.

Autorentext

Alya Al Foori is an Assistant Professor at the Sultan Qaboos University, Oman. She had attained her PhD degree from the University of Melbourne, Australia. Her research interests are on behavioral finance, corporate finance, market microstructure, real estate finance and financial economics.

Klappentext

I study the effects of(a)CEO power over the firm's information and decisions and(b)CEO overconfidence about the firm's underlying value on both firm's equity financing and CEO personal stock trading decisions. I hypothesize that an overconfident CEO will reduce stock issues and increase stock repurchases. I also hypothesize that an overconfident CEO will reduce her own sales and increase her purchases of her firm's stocks. Consistent with my hypothesis, I find that a CEO's self-importance, finance and technical education backgrounds and assumption of multiple roles including the president and chairman titles significantly decrease her probability of issuing stocks. I also find that the firm's recent performance,CEO's finance and general education backgrounds and assumption of multiple roles including the president title increase her probability of stock repurchase. I also consistently find that a CEO's assumption of multiple roles and particularly the chairman title has a significant positive impact on her personal trades in stocks and hence her share ownership. This book highlights the relevance of a CEO's traits for both the firm's financing and her personal portfolio decisions.