"CEO Overconfidence" -Article Review

Paper Summary:

This paper examines an article by Ulrike Malimander and Geoffrey Tate entiotled "CEO Overconfidence and Corporate Investment." The paper describes CEOs who persistently fail to reduce their company's exposure to risk. The authors designated the term overconfident to describe this behavior of CEOs. The paper further describes the methodology used by the authors for their evaluation. The authors additionally comment on how overconfident CEOs invested more when they have more cash at hand in the company. The paper concludes with recommendations for avoiding this behavior.

Outline:
Article Overview
Methodology
Strengths of Study
Weaknesses
Additional Comments

From the Paper:

"Authors Ulrike Malimander and Geoffrey Tate wished to examine the negative ramifications of the actions of overconfident CEOs in regards to corporate investment. For the purposes of the study, they defined CEOS as overconfident if the individuals persistently failed to reduce their company's exposure to company-specific risk. The study postulated that managers who overestimated the returns to their investment projects over-invested when the company had abundant internal funds, but curtailed investment when the company required external financing. The CEOs acted as though they viewed external funds as unduly costly unlike internal funds. "

Sample of Sources Used:

• Delaney, Robert (20 Oct 2003) APA Citing Guide. 5th Edition. Retrieved from CW Post citing guide 4 Mar 2006 at http://www.liu.edu/cwis/cwp/library/workshop/citapa.htm
• Malimander, Ulrike& Geoffrey Tate. (Dec 2005)"CEO Overconfidence and Corporate Investment." The Journal of Finance. 60 (6). 2661-3000. Retrieved 4 Mar 2006 at http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1540-6261.2005.00813.x?cookieSet=1

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