CEO Overconfidence and Over investment: Role of Exchange Rate

Subject Areas : Financial Economics

Hossein  Alidadi ¹ (Department of Accounting, Shahrood Branch, Islamic Azad University, Shahrood, Iran)
Mohammadreza  Abdoli ² (Department of Accounting, Shahrood Branch, Islamic Azad University, Shahrood, Iran)
Farhad  Dehdar ³ (Department of Accounting, Shahrood Branch, Islamic Azad University, Shahrood, Iran)

Received: 2020-05-21 Accepted : 2020-11-26 Published : 2023-07-01

Keywords: Over investment, exchange rate, CEO Overconfidence,

Abstract :

The financial anomalies, which have brought about challenges for the nature of efficient-market hypothesis, provide ample experimental evidence on the deviation of market from rationality. According to the efficient-market hy-pothesis, investors avail themselves of all the information available in the market, and then attempt a thorough and painstaking interpretation of it. The empirical evidence, however, reveals that most investors fail to imple-ment rigorous information processing, thereby rendering to a number of behavioral theories concerning market inefficiency and biased information processing. The current research sets out to identify and scrutinize the im-pact of the CEO’s perceptual biases in judgment and economic decision-making on the reporting quality of the firms listed on the Tehran Stock Ex-change. The Purpose of this study CEO Overconfidence and Overinvestment by Role of Economic moderators Tehran Stock Exchange (TSE). One hun-dred five companies were selected as the sample size by systematic removal sampling reviewed in 2012-2019. Due to its dichotomous dependent variable, this study uses probit regression to test the research hypotheses. The results indicated the significant positive effect of CEO overconfidence on overin-vestment. It was also noted that Exchange Rate strengthens the positive effect of CEO overconfidence on overinvestment. Based on these results, the CEO's decisions as a decision-maker in charge of any company, especially under inflationary conditions, can play a substantial role in future corporate investment levels. The findings reveal that the indices of the CEO’s percep-tual biases in judgment and economic decision-making exert a significantly negative effect on financial reporting reliability and competitiveness.

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