The Influence of CEOs` Overconfidence on the Financial Performance of European Companies on Different Stages of Business Life Circle

The purpose of the study is to determine how the overconfidence of Chief Executive Officer affects the financial performance of the company at different stages of the business life cycle. The empirical analysis based on the sample of more than 1400 European public companies over 6 years. All the companies were divided into the stages of life cycle: growth, maturity and stagnation. In the context of each stage, the analysis of the influence of CEO overconfidence on the company market value was conducted. The several proxies were used as overconfidence measures based on the previous studies in the field. The methodology includes non-recursive simultaneous equation model (SEM) with consideration of endogeneity arising between the firm value and financial leverage. After testing the model robustness, it was concluded that overconfidence of the CEO has a significant positive influence on the company value at the growth stage. This finding suggests that overconfident and optimistic CEO, who able to make decisions quickly in a changing environment even ignoring the probability of favorable and unfavorable outcomes, may create the real value for the company. At the stages of maturity and stagnation, the effect of the CEO overconfidence was not confirmed. The present paper provides a new look at the theory of influence of managerial personal characteristics on the company performance from the point of view of organizational life cycle. The conducted research is unique and has several important applications. First is the contribution to the literature of influence of the personal managerial characteristics on company performance. Second is the contribution to the empirical studies of business life cycle. Third is the contribution to the literature in the field of company value and capital structure.