What Is CEO Overconfidence? Evidence from Executive Assessments

Steven N. Kaplan*, Morten Sørensen, Anastasia A. Zakolyukina

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


We use detailed assessments of CEO personalities to explore the nature of CEO overconfidence as it is commonly measured. Longholder, the option-based measure of CEO overconfidence introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures, is significantly related to several specific characteristics that are associated with overconfident individuals as well as individuals with lower ability. Similar relations hold for overconfidence measures based on CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. After controlling for ability and other characteristics, Longholder CEOs’ investments remain significantly more sensitive to cash flows. These results suggest that overconfidence, as measured by Longholder, is correlated with lower ability but still reflects empirically distinct aspects of overconfidence.

Original languageEnglish
JournalJournal of Financial Economics
Issue number2
Pages (from-to)409-425
Number of pages17
Publication statusPublished - Aug 2022
Externally publishedYes

Bibliographical note

Published online: 1 October 2021.


  • CEO characteristics
  • CEO overconfidence
  • Corporate investment

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