In a study based on a sample of large S&P 1500 companies, researchers Joon Mahn Lee, Byoung-Hyoun Hwang and Hailiang Chen found that founder CEOs are more overconfident than professional CEOs hired later by the company. They studied the tweets, statements and predictions of the CEOs and found that founder CEOs use substantially less negative words, are highly optimistic about earnings and are more likely to hold on to unreasonably high number of options. The study also suggests that investors are unaware of this overconfidence, which contributes to over-valuation of firms. While founder CEOs’ overconfidence is dispositional, professional CEOs’ overconfidence comes from organisational context and past experiences. Either way, how beneficial can this confidence be? Because, as they say, overconfidence precedes carelessness.

Title: Behavioural Differences Between Founder CEOs and Professional CEOs: The Role of Overconfidence

Source: Social Science Research Network