Does CEO Confidence Complement or Substitute Antitakeover Provisions?: Evidence from CEO Turnover

Abstract

[Purpose]Confident CEOs overestimate future returns on investment and their managerial abilities. On the one hand, such CEOs may prefer adopting additional ATPs to avoid myopic pressure on their active investment. They regard the firm’s existing ATPs as harmful to firm value and unnecessary since they are confident, hence they may not prefer ATPs. [Methodology]We focus on the U.S. sample of CEO turnovers and control for the firm fixed effects. This approach enables us to examine the effect of CEO turnover from a cautious CEO to a confident CEO (or vice－versa) on ATPs for CEO turnover sample, whereas does so the effect of becoming a confident CEO within the same CEO on ATPs for the remaining sample. [Findings]We find that firms with confident CEOs are less likely to adopt additional ATPs. In particular, the turnovers from cautious CEOs to confident CEOs, relative to the other turnover types, are negatively related to the future change in ATPs. Furthermore, we find that CEO confidence can be beneficial to firm value if it accompanies the reduction in ATPs. [Implications]This study can contribute to the literature as it is the first attempt to examine the effect of CEO confidence on ATPs. Overall, our study suggests that the effect of CEO confidence on ATPs is negative, indicating that managerial confidence may substitute ATPs.