| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 10475824 | Journal of Financial Economics | 2016 | 26 Pages |
Abstract
We examine the impact of overconfidence on compensation structure. Our findings support the exploitation hypothesis: firms offer incentive-heavy compensation contracts to overconfident Chief Executive Officers (CEOs) to exploit their positively biased views of firm prospects. Overconfident CEOs receive more option-intensive compensation and this relation increases with CEO bargaining power. Exogenous shocks (Sarbanes-Oxley Act of 2002 (SOX) and Financial Accounting Standard (FAS) 123R) provide additional support for the findings. Overconfident non-CEO executives also receive more incentive-based pay, independent of CEO overconfidence, buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence.
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Authors
Mark Humphery-Jenner, Ling Lei Lisic, Vikram Nanda, Sabatino Dino Silveri,