Testing the moderating role of board independence on the relationship between CEO confidence and firm performance

Subject Areas : Corporate governance

Anahita Zandi ¹

1 - Assistant Prof, Department of Accounting, Qods City Branch, Islamic Azad University, Tehran, Iran

Received: 2024-07-27 Accepted : 2024-10-13 Published : 2025-01-27

Keywords: CEO overconfidence, firm performance, board independence, behavioral biases, decision making.,

Abstract :

Based on higher ladder theory, the present study is an attempt to evaluate the relationship between CEO overconfidence and company performance. This study also examines the moderating role of board independence in this context. Using the considered limitations. 141 companies were selected as the research sample in the period of 2016-2022. In order to test the research hypotheses, multivariate linear regression based on panel data has been used. . The empirical results of this research show that there is a positive and significant relationship between CEO confidence and company performance. CEOs with high self-confidence tend to make fast and experimental decisions and reduce the company's low investment problems and are more inclined to increase the overall performance of the company. Furthermore, the results show that independent board directors can turn the positive relationship between CEO overconfidence and firm performance into a negative relationship due to their limited knowledge of the industry and business. In fact, independent directors, as independent board members, may not be fully familiar with industry and business dynamics. They often take the main decisions of the company when necessary and therefore tend to reject the financial and investment proposals of the CEO. This may lead to a decrease in the financial performance of a company in the long run.

References:

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