Document Type : Research Paper
Authors
Department of accounting, Faculty of Management andAccounting, Allameh Tabtaba'i University, Tehran, Iran
Abstract
This study, considering the growing role of managers’ behavioral characteristics in financial decisions and the importance of ownership structure in shaping the consequences of these characteristics, examined the effect of CEO overconfidence on corporate resilience and the moderating role of ownership concentration. The main objective of the study was to test the effect of CEO overconfidence on corporate resilience and to examine the moderating role of ownership concentration in this relationship. The research was applied in nature and, in terms of method, was descriptive–causal based on archival data. The statistical population included companies listed on the Tehran Stock Exchange and Iran Fara Bourse during the years 2015 to 2024, from which, after applying screening criteria, 206 companies, equivalent to 2,060 firm-year observations, were selected as the final sample. Managerial overconfidence was measured using three proxies based on investment patterns and was converted into a composite variable through factor analysis. Ownership concentration was measured based on the percentage of shares held by major shareholders, and resilience was measured using stock price crash severity. The hypotheses were tested using panel data regression models with controls for year and industry effects. The findings showed that managerial overconfidence alone had no significant effect on corporate resilience; however, the interaction effect of ownership concentration and CEO overconfidence was significant. The results indicated that the impact of CEO overconfidence on corporate resilience depended on the level of ownership concentration, and this ownership mechanism could shape the way managerial behavioral consequences manifest.
Introduction
This study examines the effect of CEO overconfidence on corporate resilience with emphasis on the moderating role of ownership concentration in firms listed on the Tehran Stock Exchange and Iran Fara Bourse. The motivation for conducting this research stems from the growing attention paid to managerial behavioral characteristics in corporate finance and strategic decision-making. In recent years, scholars in behavioral finance have increasingly emphasized that managerial traits and psychological biases can influence corporate decisions and ultimately affect firm outcomes. Among these behavioral characteristics, managerial overconfidence has attracted considerable attention because it may influence managers’ perceptions of risk, investment opportunities, and the expected outcomes of strategic decisions. At the same time, corporate governance mechanisms—particularly ownership structure—play an important role in shaping how managerial characteristics translate into organizational outcomes. Ownership concentration, which reflects the extent to which shares are held by large shareholders, can influence monitoring intensity, managerial discretion, and the effectiveness of governance mechanisms. Accordingly, examining the effect of CEO overconfidence on corporate resilience without considering the governance context may provide an incomplete understanding of the phenomenon. Therefore, the present study aims to investigate the effect of CEO overconfidence on corporate resilience and to determine whether ownership concentration moderates this effect in firms listed on the Tehran Stock Exchange and Iran Fara Bourse.
Literature Review
Prior studies indicate that CEO overconfidence can significantly influence corporate investment, financing, and strategic decision-making. Overconfident managers tend to overestimate their ability to generate favorable outcomes and may consequently undertake more aggressive investment strategies or engage in riskier financial decisions. While such behavior may sometimes lead to positive outcomes, it may also expose firms to higher levels of uncertainty and vulnerability. Therefore, managerial overconfidence can potentially affect different dimensions of firm performance and stability, including corporate resilience. Corporate resilience refers to a firm’s capacity to withstand adverse shocks and maintain stability in the face of uncertainty and market fluctuations. From this perspective, managerial decisions influenced by behavioral biases may affect the firm’s vulnerability to negative events and its ability to absorb and recover from such shocks. However, the consequences of managerial overconfidence are not necessarily uniform across all firms. The impact of this behavioral trait may depend on the governance environment in which managerial decisions are made. Ownership concentration, as an important component of corporate governance, can influence the degree of monitoring imposed on managers and the extent of managerial discretion. In firms with higher ownership concentration, major shareholders may exert stronger monitoring and oversight over managerial decisions. Such monitoring may influence how managerial overconfidence translates into corporate outcomes. Consequently, ownership concentration may play a moderating role in shaping the effect of CEO overconfidence on corporate resilience. Based on these theoretical arguments and prior empirical findings, the following hypotheses are proposed:
Hypothesis 1: CEO overconfidence has a significant effect on corporate resilience.
Hypothesis 2: Ownership concentration moderates the relationship between CEO overconfidence and corporate resilience.
Methodology
The study is applied in nature and adopts a descriptive–causal design based on archival data. The statistical population consists of all firms listed on the Tehran Stock Exchange and Iran Fara Bourse during the period 2015–2024. After applying screening criteria, including data availability, a consistent fiscal year-end, and the exclusion of financial institutions, the final sample includes 206 firms, resulting in 2,060 firm-year observations.
CEO overconfidence is measured using three investment-based proxies (OC-V, OC-AS, and OC-CAPEX). To avoid multiple separate estimations and to capture the common variation among these measures, factor analysis is used to construct a composite overconfidence variable. Ownership concentration is measured as the percentage of shares held by major shareholders. Corporate resilience is measured using stock price crash severity. The hypotheses are tested using panel data regression models with year and industry fixed effects. To examine the robustness of the findings, the models are re-estimated using each individual overconfidence proxy separately.
Results
The empirical findings indicate that CEO overconfidence does not have a statistically significant direct effect on corporate resilience. This result suggests that managerial overconfidence alone is not sufficient to explain variations in corporate resilience among the sampled firms. The absence of a significant direct effect was observed both in the main model that uses the composite overconfidence variable and in the robustness tests that rely on individual overconfidence proxies. However, the results also reveal that the interaction term between ownership concentration and CEO overconfidence is statistically positive and significant. This finding indicates that the effect of CEO overconfidence on corporate resilience depends on the level of ownership concentration within the firm. In other words, ownership concentration alters the way in which managerial overconfidence influences corporate resilience. Furthermore, the moderating role of ownership concentration remains generally stable across alternative model specifications, which provides additional support for the robustness of the findings. These results suggest that corporate governance mechanisms—particularly ownership concentration—can shape the consequences of managerial behavioral characteristics.
Conclusion
The findings of this study indicate that CEO overconfidence alone does not significantly explain variations in corporate resilience among firms listed on the Tehran Stock Exchange and Iran Fara Bourse. However, ownership concentration plays a positive and significant moderating role in the effect of CEO overconfidence on corporate resilience. This implies that the governance structure of firms can influence how managerial behavioral characteristics are reflected in corporate outcomes. Overall, the results highlight the importance of considering ownership structure when examining the consequences of managerial behavioral traits. The findings also suggest that the impact of CEO overconfidence on corporate resilience should be interpreted within the broader context of corporate governance mechanisms. These insights contribute to the literature on behavioral corporate finance and corporate governance by emphasizing the role of ownership concentration in shaping the effect of managerial overconfidence on firm resilience in the Iranian capital market
Keywords
- CEO Overconfidence
- Corporate Governance
- Corporate Resilience
- Ownership Concentration
- Ownership Structure
Main Subjects
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