Power of an overconfident CEO and dividend payment
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lip 27, 2019
Słowa kluczowe:
overconfidence, managerial power, dividend payment
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Abstrakt
The aim of the paper is to identify the relation between managerial overconfidence, managerial power and dividend decisions. We have implemented the survey to detect managerial overconfidence. We collected 145 answers with financial data covering 2010–2015. We employed the managerial share in ownership as a proxy for managerial power.
We found that managerial power enhances to reveal the overconfidence in dividend decisions. We also found the pattern of behaviour of an overconfident manager having more power: more frequent dividends are paid out, but if dividend is paid out, the level and ratio of the dividend is lower.
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Wrońska-Bukalska, E. (2019). Power of an overconfident CEO and dividend payment. Journal of Management and Financial Sciences, (35), 61–80. https://doi.org/10.33119/JMFS.2018.35.4
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Bibliografia
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Cambridge, England: Cambridge University Press.
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Applied Sciences, Vol. 7, No. 7, pp. 287–301.
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Vol. 32, No. 2, pp. 167–174.
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and Social Psychology, Vol. 57, pp. 1082–1090.
28. Eckbo B. E., Verma S., 1994. Managerial Shareownership, Voting Power, and Cash Dividend Policy. Journal of Corporate Finance, Vol. 1, pp. 33–62.
29. Fahlenbrach R., 2009. Founder-CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis, Vol. 44, No. 2, pp. 439–466.
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33. Finkelstein S., D’Aveni R. A., 1994. CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management
Journal, Vol. 37, No. 5, pp. 1079–1108.
34. Fischer H. M., Pollock T. G., 2004. Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, Vol. 47,
No. 4, pp. 463–481.
35. Fischhoff B., Slovic P., Lichtenstein S., 1977. Knowing with Certainty: The Appropriateness of Extreme Confidence. Journal of Experimental Psychology: Human Perception and Performance, Vol. 3, pp. 552–564.
36. Florackis C., Kanas A., Kostakis A., 2015. Dividend policy, managerial ownership and debt financing. A non-parametric perspective. European Journal of Operational Research, Vol. 241,
pp. 783–795.
37. Gervais S., Heaton J. B., Odean T., 2003. Overconfidence, Investment Policy, and Executive Stock Options. Retrieved from: https://ssrn.com/abstract=361200
38. Gigerenzer G., Hoffrage U., Kleinbolting H., 1991. A Brunswikian Theory of Confidence. Psychological Review, Vol. 98, No. 4, pp. 506–528.
39. Goel A. M., Thakor A. V., 2008. Overconfidence, CEO Selection, and Corporate Governance. The Journal of Finance, Vol. 63, Iss. 6, pp. 2737–2784.
40. Harris D., Helfat C. E., 1998. CEO duality, succession, capabilities and agency theory: Commentary and research agenda. Strategic Management Journal, Vol. 19, No. 9, pp. 901–904.
41. Hayward M. L. A., Hambrick D. C., 1997. Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris. Administrative Science Quarterly, Vol. 42, No. 1, pp. 103–127.
42. Heaton J. B., 2002. Managerial Optimism and Corporate Finance. Financial Management, Vol. 31, pp. 33–45.
43. Hu A., Kumar p., 2004. Managerial Entrenchment and Payout Policy. The Journal of Financial and Quantitative Analysis, Vol. 39, No. 4, pp. 759–790.
44. Jensen M. C., 1983. Separation of Ownership and Control. Journal of Law and Economics, Vol. 26, pp. 301–325.
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47. Jo H., Pan C., 2009. Why are firms with entrenched managers more likely to pay dividends? Review of Accounting and Finance, Vol. 8, Iss. 1, pp. 87–116.https://doi.org/10.1108/14757700910934256
48. Johnson D. D. P., 2004. Overconfidence and War. The Havoc and Glory of Positive Illusions, Cambridge, Massachusetts: Harvard University Press.
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Personality and Social Psychology, Vol. 61. No. 5, pp. 698–707.
50. Kidd J. B., 1970. The Utilization of Subjective Probabilities in Production Planning. Acta Psychologica, Vol. 34, pp. 338–347.
51. Larrick R. P., Burson K. A., Soll J. B., 2007. Social Comparison and Confidence: When Thinking You’re Better than Average Predicts Overconfidence (and When It Does Not). Organizational
Behavior and Human Decision Processes, Vol. 102, pp. 76–94.
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Processes, Vol. 116, Iss. 2, pp. 262–271.
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pp. 187–221.
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abstract=2136624 or http://dx.doi.org/10.2139/ssrn.2136624
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2. Adams J. K., Adams P. A., 1961. Realism of Confidence Judgements. Psychological Review, Vol. 68, pp. 33–45.
3. Al-Ghazali A. M., 2014. The Economic and Behavioural Factors Affecting Corporate Dividend Policy: Theory and Evidence. Retrieved from: http://opus.bath.ac.uk/46574/1/Abdullah_s_Thesis.pdf
4. Aivazian V., Booth L., Cleary S., 2003. Do Emerging Markets Firms follow Different Dividend Policies from U. S. firms? The Journal of Financial Research, Vol. 26, No. 3, pp. 71–387.
5. Alicke M. D., Govorun O., 2005. The Better-Than-Average Effect. In: M. D. Alicke, D. A. Dunning, J. I. Krueger (Eds.), The Self in Social Judgment. New York: Psychology Press.
6. Alpert M., Raiffa H., 1982. A progress report on the training of probability assessors. In: D. Kahneman, P. Slavic, L. A. Tversky (Eds.), Judgment under uncertainty: Heuristics and biases.
Cambridge, England: Cambridge University Press.
7. Baccar A., Mohamed E. B., Bouri A., 2013. Managerial Optimism, Overconfidence and Board Characteristics: Toward a New Role of Corporate Governance. Australian Journal of Basic and
Applied Sciences, Vol. 7, No. 7, pp. 287–301.
8. Baker M., Ruback R. S., Wurgler J., 2007. Behavioral Corporate Finance: A Survey. In: B. E. Eckbo (Ed.), Handbook of Empirical Corporate Finance. Amsterdam: Elsevier/North Holland.
9. Barros L. A. B. de C., Silveira A. de M., 2008. Overconfidence, Managerial Optimism. Brazilian Review of Finance, Vol. 6, No. 3, pp. 293–335.
10. Baumann A. O., Deber R. B., Thompson G. G., 1991. Overconfidence Among Physicians and Nurses: The ‘Micro-Certainty, Macro-Uncertainty’ Phenomenon. Social Science and Medicine,
Vol. 32, No. 2, pp. 167–174.
11. Bebchuk L. A., Cremers K. J. M., Peyer U. C., 2011. The CEO pay slice. Journal of Financial Economics, Vol. 102, pp. 199–221.
12. Ben-David I., Graham J. R., Harvey C., 2007. Managerial Overconfidence and Corporate Policies. Retrieved from: www.nber.prg/papers/w13711
13. Benoît J. -P., Dubra J., 2011. Apparent Overconfidence. Econometrica, Vol. 79, No. 5, pp. 1591–1625.
14. Boyd B. K., 1995. CEO duality and firm performance: A contingency model. Strategic Management Journal, Vol. 16, No. 4, pp. 301–312.
15. Brav A., Graham J. R., Harvey C., Michaely R., 2005. Payout Policy in the 21st Century. Journal of Financial Economics, Vol. 77, No. 3, pp. 483–527.
16. Brown J. D., 2012. Understanding the better than average effect: Motives (still) matter. Personality and Social Psychology Bulletin, Vol. 38, No. 2, pp. 209–219.
17. Chen S., Zheng H., Wu S., 2011. Senior manager overconfidence, managerial discretion and dividend policy: A study of Chinese listed Companies. African Journal of Business Management, Vol. 5, No. 32, pp. 12641–12652.
18. Christensen-Szalanski J. J., Bushyhead J. B., 1981. Physicians’ Use of Probabilistic Information in a Real Clinical Setting. Journal of Experimental Psychology: Human Perception and Performance, Vol. 7, No. 4, pp. 928–935.
19. Coles J. L., Daniel N. D., Naveen L., 2008. Boards: does one size fit all? Journal of Financial Economics, Vol. 87, No. 2, pp. 329–356.
20. Cooper A. C., Woo C. Y., Dunkelberg W. C., 1988. Entrepreneurs’ Perceived Chances for Success. Journal of Business Venturing, Vol. 3, No. 2, pp. 97–108.
21. Cordeiro L., 2009. Managerial Overconfidence and Dividend Policy. Retrieved from: https://ssrn.com/abstract=1343805
22. DeBondt W. F., Thaler R., 1995. Financial decision-making in markets and firms: a behavioral perspective. Retrieved from: http://www.nber.org/papers/w4777.pdf
23. Demsetz H., 1983. The Structure of Ownership and the Theory of the Firm. Journal of Law and Economics, Vol. 26, Iss. 2, pp. 375–390.
24. Deshmukh S., Goel A. M., Howe K. M., 2013. CEO Overconfidence and Dividend Policy. Journal of Financial Intermediation, Vol. 22, No. 3, pp. 440–463.
25. Doukas J. A., Petmezas D., 2007. Acquisitions, Overconfident Managers and Self-Attribution Bias. European Financial Management, Vol. 13, No. 3, pp. 531–577.
26. Dowell G. W. S., Shackell M. B., Stuart N. V., 2011. Boards, CEOs, and surviving a financial crisis: Evidence from the internet shakeout. Strategic Management Journal, Vol. 32, No. 10,
pp. 1025–1045.
27. Dunning D., Meyerowitz J. A., Holzberg A. D., 1989. Ambiguity and Self-Evaluation: The Role of Idiosyncratic Trait Definitions In Self-Serving Assessments of Ability. Journal of Personality
and Social Psychology, Vol. 57, pp. 1082–1090.
28. Eckbo B. E., Verma S., 1994. Managerial Shareownership, Voting Power, and Cash Dividend Policy. Journal of Corporate Finance, Vol. 1, pp. 33–62.
29. Fahlenbrach R., 2009. Founder-CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis, Vol. 44, No. 2, pp. 439–466.
30. Fama E. F., Jensen M. C., 1983. Separation of Ownership and Control. Journal of Law and Economics, Vol. 26, pp. 301–325.
31. Farinha J., 2003. Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis. Journal of Business Finance and Accounting, Vol. 30,
Iss. 9–10, (2003), pp. 1173–1209.
32. Finkelstein S., 1992. Power in Top Management Teams: Dimensions, Measurement, and Validation. Academy of Management Journal, Vol. 35, No. 3, pp. 505–538.
33. Finkelstein S., D’Aveni R. A., 1994. CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management
Journal, Vol. 37, No. 5, pp. 1079–1108.
34. Fischer H. M., Pollock T. G., 2004. Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, Vol. 47,
No. 4, pp. 463–481.
35. Fischhoff B., Slovic P., Lichtenstein S., 1977. Knowing with Certainty: The Appropriateness of Extreme Confidence. Journal of Experimental Psychology: Human Perception and Performance, Vol. 3, pp. 552–564.
36. Florackis C., Kanas A., Kostakis A., 2015. Dividend policy, managerial ownership and debt financing. A non-parametric perspective. European Journal of Operational Research, Vol. 241,
pp. 783–795.
37. Gervais S., Heaton J. B., Odean T., 2003. Overconfidence, Investment Policy, and Executive Stock Options. Retrieved from: https://ssrn.com/abstract=361200
38. Gigerenzer G., Hoffrage U., Kleinbolting H., 1991. A Brunswikian Theory of Confidence. Psychological Review, Vol. 98, No. 4, pp. 506–528.
39. Goel A. M., Thakor A. V., 2008. Overconfidence, CEO Selection, and Corporate Governance. The Journal of Finance, Vol. 63, Iss. 6, pp. 2737–2784.
40. Harris D., Helfat C. E., 1998. CEO duality, succession, capabilities and agency theory: Commentary and research agenda. Strategic Management Journal, Vol. 19, No. 9, pp. 901–904.
41. Hayward M. L. A., Hambrick D. C., 1997. Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris. Administrative Science Quarterly, Vol. 42, No. 1, pp. 103–127.
42. Heaton J. B., 2002. Managerial Optimism and Corporate Finance. Financial Management, Vol. 31, pp. 33–45.
43. Hu A., Kumar p., 2004. Managerial Entrenchment and Payout Policy. The Journal of Financial and Quantitative Analysis, Vol. 39, No. 4, pp. 759–790.
44. Jensen M. C., 1983. Separation of Ownership and Control. Journal of Law and Economics, Vol. 26, pp. 301–325.
45. Jensen M. C., 1986. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, Vol. 76, No. 2, pp. 323–329.
46. Jensen G. R., Solberg D. P., Zorn T. S., 1992. Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies. Journal of Financial and Quantitative Analysis, Vol. 27,
No. 2, pp. 247–263.
47. Jo H., Pan C., 2009. Why are firms with entrenched managers more likely to pay dividends? Review of Accounting and Finance, Vol. 8, Iss. 1, pp. 87–116.https://doi.org/10.1108/14757700910934256
48. Johnson D. D. P., 2004. Overconfidence and War. The Havoc and Glory of Positive Illusions, Cambridge, Massachusetts: Harvard University Press.
49. Kassin S. M., Rigby S., Castillo S. R., 1991. The Accuracy-Confidence Correlation in Eyewitness Testimony: Limits and Extensions of the Retrospective Self-Awareness Effect. Journal of
Personality and Social Psychology, Vol. 61. No. 5, pp. 698–707.
50. Kidd J. B., 1970. The Utilization of Subjective Probabilities in Production Planning. Acta Psychologica, Vol. 34, pp. 338–347.
51. Larrick R. P., Burson K. A., Soll J. B., 2007. Social Comparison and Confidence: When Thinking You’re Better than Average Predicts Overconfidence (and When It Does Not). Organizational
Behavior and Human Decision Processes, Vol. 102, pp. 76–94.
52. Lichtenstein S., Fischhoff B., Phillips L. D., 1982. Calibration of probabilities: the state of the art to 1980. In: D. Kahneman, P. Slovic, A. Tversky (Eds.), Judgment Under Uncertainty: Heuristics and Biases. Cambridge, UK: Cambridge University Press.
53. Lin Y. -H., Hu S. -Y., Chen M. -S., 2005. Managerial Optimism and Corporate Investment: Some Empirical Evidence from Taiwan. Pacific-Basin Finance Journal, Vol. 13, pp. 523–546.
54. Linck J. S., Netter J. M., Yang T., 2008. The determinants of board structure. Journal of Financial Economics, Vol. 87, Iss. 2, pp. 308–328.
55. Lintner J., 1956. Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes. The American Economic Review, Vol. 46, pp. 97–113.
56. Lintner J., 1962. Dividends, Earnings, Leverage, Stock, Prices and the Supply of Capital to Corporations. Review of Economics and Statistics, Vol. XLIV, No. 3, pp. 243–269.
57. Malmendier U., Tate G., 2005. CEO Overconfidence and Corporate Investment. Journal of Finance, Vol. 60, No. 6, pp. 2661–2700.
58. Merkle C., Weber M., 2011. True overconfidence: The inability of rational information processing to account for apparent overconfidence. Organizational Behavior and Human Decision
Processes, Vol. 116, Iss. 2, pp. 262–271.
59. Moore D., Healy P. J., 2008. The Trouble with Overconfidence. Psychological Review, Vol. 115, pp. 502–517.
60. Moore D., Tenney E. R., Haran U., 2014. Overprecision In Judgment. In: G. Wu and G. Keren (Eds.), Handbook of Judgment and Decision Making, New York: Wiley.
61. Morse A., Nanda V., Seru A., 2011. Are Incentive Contracts Rigged by Powerful CEOs? Journal of Finance, Vol. 66, No. 5, pp. 1779–1821.
62. Myers S. C., Majluf N. S., 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics. Vol. 13, No. 2,
pp. 187–221.
63. Nanda V. K., Silveri S., Han S., 2013. CEO Power and Decision-Making Under Pressure. Midwest Finance Association 2013 Annual Meeting Paper. Retrieved from: https://ssrn.com/
abstract=2136624 or http://dx.doi.org/10.2139/ssrn.2136624
64. Oskamp S. 1962. The Relationship of Clinical Experience and Training Methods to Several Criteria of Clinical Prediction. Psychological Monographs: General and Applied, Vol. 76, No. 28,
pp. 1–27.
65. Oskamp S. 1965. Overconfidence in Case-Study Judgements. Journal of Consulting Psychology, No. 29, pp. 261–265.
66. Paredes T. A., 2004. Too Much Pay, Too Much Deference: Is CEO Overconfidence the Product of Corporate Governance? Washington U. School of Law Working Paper No. 04–08–02. Retrieved from: http://ssrn.com/abstract=587162
67. Pathan S., 2009. Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, Vol. 33, Iss. 7, pp. 1340–1350.
68. Plous S., 1993. The Psychology of Judgment and Decision Making. New York: McGraw-Hill.
69. Rozeff M. S., 1982. Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios. Journal of Financial Research, Vol. 5, No. 3, pp. 249–259.
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