The impact of overconfident customers on supplier firm risks

Yiwei Fang, Iftekhar Hasan, Chih Yung Lin, Jiong Sun*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Research has shown that firms with overconfident chief executive officers (CEOs) tend to overinvest and are exposed to high risks due to unrealistically optimistic estimates of their firms’ future performance. This study finds evidence that overconfident CEOs also affect suppliers’ risk taking. Specifically, serving overconfident customers can lead to high supplier risks, measured by stock volatility, idiosyncratic risk, and market risk. The effects are pronounced when customers aggressively invest in research and development (R&D). Our results are robust after addressing self-selection bias and using different CEO overconfidence measures. We also document some real effects of customer CEO overconfidence on suppliers.

Original languageEnglish
Pages (from-to)115-133
Number of pages19
JournalJournal of Economic Behavior and Organization
Volume197
DOIs
StatePublished - May 2022

Keywords

  • CEO overconfidence
  • firm risk
  • Supply chain

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