The Effect of CEO Optimism and Myopia on Dimensions of Corporate Risk Management Moderated by CEO Political Connection and Efficiency

Subject Areas : Financial and Behavioral Researches in Accounting

Javad Zanganeh ¹ , majid ashrafi ² , Ebrahim Abbassi ³ , Arash Naderian ⁴

1 - PhD Student of Financial Engineering, Aliabad Katoul, Branch, Islamic Azad University, Aliabad katoul , Iran.
2 - Assistant Professor of Accounting Department, Aliabad Katoul, Branch, Islamic Azad University, Aliabad katoul , Iran
3 - Professor of Management Department, Alzahra University, Tehran, Iran.
4 - Assistant Professor of Accounting, Aliabad Katoul Branch, Islamic Azad University, Aliabad Katoul, Iran.

Received: 2022-06-04 Accepted : 2022-08-17 Published : 2022-08-23

Keywords: Myopia, Dimensions of risk management, Efficiency, Political connection, Optimism,

Abstract :

The CEO behavioral pattern is the most important factor in decisions regarding corporate financing and capital structure composition. With the increasing competitiveness and management difficulty in highly complex organizational environments, firms (companies/organizations) require CEOs who can identify and consider such inherent complexity in momentous decisions. Risk management constitutes a major part of this decision-making process. Therefore, this study sought to address how CEO’s optimism and myopia affect different dimensions of corporate risk management, including compliance, strategy, operation, and reporting, considering the moderating role of CEO’s political connection and efficiency. To this end, the data were collected from 130 firms listed on Tehran Stock Exchange in the 2014–2018 timeframe, and they were analyzed using multivariate regression with combined data. Results (from hypothesis testing) showed that CEO’s optimism has a negative relationship with strategy and operation, but a positive one with reporting. They also revealed that there is a negative, significant relationship between CEO’s myopia and strategy and compliance. CEO’s political connection turns negative the relationship between CEO’s optimism and operation as well as the relationship between CEO’s myopia and compliance; in addition, it has a positive effect on the relationship between CEO’s optimism and compliance and strategy, and a negative one on (the relationship with) operation. The mediating role of CEO’s efficiency is positive in the relationship between myopia and strategy and reporting, and it is negative in the relationship of myopia with operation.