Guoli Chen, Craig Crossland, Shuqing Luo
Firms often make mistakes, from simple manufacturing overruns all the way to catastrophic blunders. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future. In this paper, we explore an important but understudied influence on firms' responses to corrective feedback - a CEO's level of overconfidence. Using multiple distinct measures of overconfidence and the empirical context of voluntary corporate earnings forecasts, we find strong, robust evidence that firms led by overconfident CEOs are less responsive to corrective feedback in improving management forecast accuracy. We further show that this relationship is moderated by prior forecast error valence, time horizon, and managerial discretion. © 2014 John Wiley & Sons, Ltd.
Strategy Department, INSEAD, Singapore, Singapore; Management Department, Mendoza College of Business, University of Notre Dame, Notre Dame, 46556, IN, United States; Accounting Department, NUS School of Business, National University of Singapore, Singapore, Singapore
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