Self‐serving attribution and managerial investment decision

This study examines whether managerial overconfidence coupled with self‐attribution bias distorts the investment decisions of firms. To this end, we investigate the impact of overconfidence on asymmetric investment cash flow sensitivity (ICS). We find that managerial overconfidence affects ICS in a...

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Bibliographic Details
Published in:Bulletin of economic research 2024-07, Vol.76 (3), p.749-772
Main Authors: Chung, Chune Young, Choi, Changhwan, Fard, Amirhossein
Format: Article
Language:English
Subjects:
Attribution
Cash flow
Decision making
Investment
investment cash flow sensitivity
Investment decision
Investments
overconfidence
Qualitative research
self‐attribution bias
Sensitivity
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Summary:This study examines whether managerial overconfidence coupled with self‐attribution bias distorts the investment decisions of firms. To this end, we investigate the impact of overconfidence on asymmetric investment cash flow sensitivity (ICS). We find that managerial overconfidence affects ICS in a downward‐sticky direction, which is reinforced by overconfidence coupled with managerial self‐attribution. The results for both unconstrained and constrained firms are qualitatively consistent with those for the overall sample; however, the constrained subsample provides slightly weaker results. Thus, our findings indicate that managerial overconfidence and self‐attribution to recent successes may induce managers to make excessive investment commitments.
ISSN:0307-3378
1467-8586
DOI:10.1111/boer.12444