CEO overconfidence across the firm lifecycle: effects on accounting outcomes and stock market reactions

Abstract

This study explores the relationship between CEO overconfidence and firm performance across different stages of the firm life cycle. Previous research has shown that an overconfident CEO's personality can influence key decisions related to investments, financial reporting, and broader corporate policies. A firm's evolution is shaped by shifts in both internal factors, such as investment and managerial choices, and external factors like industry trends and economic conditions. The existing literature suggests that the various stages of a firm's life cycle significantly affect decision-making processes and profitability. Our findings indicate that firms led by overconfident CEOs exhibit varying performance outcomes and abnormal returns depending on the firm's life cycle stage. Notably, firms tend to outperform and achieve positive future performance (abnormal stock market returns) during the growth mature and shakeout (growth and mature) stages. However, they experience weaker accounting performance during the decline stage. In addition, cross-sectional tests reveal that, in the decline stage, firms with a better information environment do not experience the negative impact of CEO overconfidence on future accounting performance. © 2025 Elsevier B.V., All rights reserved.