Are Not Overconfident CEOs Better Leaders?

American economist Richard Taylor was awarded the 2017 Nobel Memorial Prize in Economic Sciences for his contributions in the field of behavioral economics,which is another such prize after Daniel Kahneman in 2002.As more and more attention by scholars is paid to behavioral economics in recent years,the "rational person hypothesis" in traditional economics has been much debated and discussed.Behavioral economics is an interdiscipline that combines psychology with mainstream economics.And the most robust conclusion of the research on individual traits in psychology is that people are overconfident.The manager is the important initiator and leader of corporate strategy.Is overconfidence of manager good or bad for the company?To solve this question,based on the A-share listed companies in Shanghai and Shenzhen during 2011-2017,this paper examines the influences of CEO overconfidence on employees,suppliers and customers who are three key stakeholders of company.Further,the paper considers the impact of CEO overconfidence on these three key stakeholders in the context of environmental uncertainty,different industries,and different ownership.Because executives can't hedge risk by short-selling stocks,they are overexposed to the idiosyncratic risks.However,overconfident CEOs choose to hold stocks until the maturity date of the exercise or even increase the company's stock during this period.This indicates that overconfident CEOs have a strong belief in their company's prospects.This belief attracts more stakeholders to establish strategic partnerships with the company.Specifically,CEO overconfidence will reduce the concentration of supplier and customer.Since the concentration of supplier and customer is inversely proportional to their respective numbers,indicating that overconfident CEO willattract more suppliers and customers to cooperate with the company.Because the company always operates in the specific market environment and changes in the market environment will affect the development of company,stakeholders will decide whether to cooperate with company based on the corporate ability to cope with environmental changes.Therefore,this paper considers the uncertainty of the external environment and finds that CEO overconfidence has a more significant impact on suppliers and customers in the higher environment uncertainty.Next,this paper considers the influence of CEO overconfidence on employee behavior.It has been discovered that overconfident CEOs are better able to retain employees,particularly when talent is valuable.The quality of CEO overconfidence also motivates employees to work more efficiently.Furthermore,compared with state-owned listed companies,this paper finds that the CEO overconfidence of non-state-owned companies have more significant effects on employee productivity.Finally,in order to make the results more reliable,this paper also tests the influence of CEO overconfidence on the volatility of suppliers and customers relationships.The results show that overconfident CEOs not only attract more suppliers and customers but also establish a more stable relationship with these suppliers and customers.In order to prove that employees are attracted by the leadership of overconfident CEOs rather than the internal investment activities of the company,this paper also examines the situation whereoverconfident CEOs will restrict investment when the company internal cash flow is low.The results show that employees still show high loyalty even though the corporate cash flow is low.So the employees continue to stay at the company,not because of the company's expansionary activities.In summary,in the employees,suppliers and customers perspective,this paper probes into the influences of CEO overconfidence on these three key stakeholder's behaviors.It broadens new horizon of the research on CEO overconfidence and shows the positive side ofmanagerial overconfidence.At the same time,the results of the study can explain why the company is willing to hire overconfident managers and provide a new way of thinking for the company to select talent.