CEO Overconfidence and Corporate Sustainability in Small and Medium-Sized Enterprises: New Evidence from Quantile Regression Analysis
Keywords:
CEO overconfidence, corporate sustainability, multiple analysis, small and medium-sized enterprisesAbstract
CEO characteristics significantly influence corporate decisions regarding financing, investment, and operations. Overconfident CEOs tend to overestimate their capabilities and underestimate the risks associated with projects. This behavior can negatively affect the financial continuity and sustainability of small and medium-sized enterprises (SMEs), as such CEOs often perceive external funding to be more costly than internal resources and, consequently, restrict their firm’s access to capital. In this context, the aim of this article is to examine the effect of managerial overconfidence on corporate sustainability in SMEs. To achieve this, two indicators—capital expenditure and overinvestment—are used as proxies for CEO overconfidence. The research method employed in this study includes a sample of 132 companies listed on the Tehran Stock Exchange during the period from 2017 to 2023. Quantile regression technique is used for data analysis. The results of the analysis indicate a significant and negative relationship between the overconfidence indicators and corporate sustainability. In other words, an increase in CEO overconfidence leads to suboptimal financial decisions, which in turn have a detrimental impact on corporate sustainability. The findings of this study highlight the adverse and complex effects of overconfidence on firm performance and sustainability and suggest that managers and decision-makers should consider realism and caution when making financial and investment decisions.
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