The Impact of CEO’s Overconfidence on the Relationship between Cash Holdings and Excess

Aghaei, Mohammad Ali; Amri Asrami, Mohammad

doi:10.22054/qjma.2021.51016.2139

Document Type : Research Paper

Authors

¹ Associate Professor,Accounting Department, Management and Economics, Tarbiat Modares University, Tehran, Iran.

² Assistant professor,Accounting Department , Faculty of Economics, Management and Administrative Sciences, Semnan University,Semnan, Iran.

https://doi.org/10.22054/qjma.2021.51016.2139

Abstract

In this study, the impact of CEO’s overconfidence on the relationship between cash holding and excess returns is investigated in companies listed in Tehran Stock Exchange during the years 2011-2018. For CEO’s overconfidence, overinvestment in assets, and for excess returns, the difference between a firm’s stock return and the return of the firm’s benchmark portfolio over the same period is used. By systematic sampling, a sample of 157 companies is selected, and the models have run based on panel data with fixed effects. The results have shown that (1) cash holding has a positive and significant impact on excess returns, (2) CEO’s overconfidence has a negative and significant impact on excess returns, and lastly, (3) CEO’s overconfidence has a negative and significant impact on the relationship between cash holdings and the excess returns. With increasing CEO’s overconfidence, the excess returns will be reduced. Overconfident managers keep cash at a higher level that leads to overinvestment. It consequently decreases excess returns.

Keywords

Main Subjects

Accounting and various aspects of finance

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The Impact of CEO’s Overconfidence on the Relationship between Cash Holdings and Excess

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References

Volume 18, Issue 72January 2022Pages 57-77

Volume 18, Issue 72
January 2022
Pages 57-77