Much of the evidence on managerial biases in corporate finance focuses on the CEO and, in particular, CEO overconfidence. This singular focus can lead to misattribution as it ignores the roles of other managers who are responsible for a given corporate outcome. We evaluate the influence of the CFO and other C-suite executives as compared with the CEO. Mirroring the widely used Longholder CEO measure of CEO overconfidence, we construct Longholder CFO and Longholder Other measures. For financing decisions, we find that CEO overconfidence becomes an insignificant predictor of most decisions when included jointly with the CFO proxy, whereas CFO overconfidence has strong predictive power. The reverse holds for nonfinancing decisions: CEO beliefs predict the risk and return of investment projects and, thus, their cost of financing as well as acquisitions. Other C-suite managers’ overconfidence is not significant in either of these two realms. CEO overconfidence does remain significant even for financing decisions in the subsample of firms with “powerful” (entrenched) CEOs. We also show that overconfident CEOs tend to hire overconfident CFOs, which generates a multiplier effect and explains the misattribution to the CEO in analyses that do not account for the roles of other managers. Our results imply that analyses of managerial biases need to identify the dominant decision makers and account for their respective influence.
Management Science, Vol. 69, Issue 6, pp. 3157-3758, 2023