CEO OVERCONFIDENCE AND CORPORATE SOCIAL RESPONSIBILITY

Abstract

Recent studies show that CEO overconfidence affects various corporate investment and financing policies. In this paper, we investigate the impact of CEO overconfidence on corporate social responsibility and provide an explanation for this effect. We find that overconfident CEOs tend to under-invest in corporate responsibility and over-invest to mitigate corporate irresponsibility. We show that this one-sided focus is due to the intention of overconfident CEOs to manage firm downside risks. Empirical results also suggest that, however, investments in both corporate responsibility and irresponsibility do not help to reduce firm risk.