Although overconfidence is acknowledged as one of the most common managerial decision-making biases, much uncertainty remains about its implications for firm performance. To resolve this uncertainty, we investigate how and why CEO overconfidence is related to firm performance using meta-analytic techniques on a sample of 199 studies. In particular, relying on behavioral decision theory, we develop alternative hypotheses regarding the impact of CEO overconfidence on firm performance. Contrary to the conventional belief that CEO overconfidence is detrimental, this study reveals that CEO overconfidence is, on average, beneficial for firm performance. Drawing on recent refinements of upper echelons theory and theoretical insights from the psychology literature, we then dive deeper into this positive relationship and hypothesize that overconfident CEOs engage in strategic risk taking through cognitive, motivational, and social mechanisms. This risk taking is positively related to firm performance. Our results confirm that the positive relationship between CEO overconfidence and firm performance is partially mediated through strategic risk taking. Thus, although CEO overconfidence is a cognitive bias, it does not automatically lead to inferior performance but can create value for firms by impelling CEOs to take actions that involve risk. We also test whether this relationship is stronger under conditions of high managerial discretion. Our results generally validate these predictions. Finally, based on our findings, we discuss implications and directions for future CEO overconfidence research, including determining the limits of CEO overconfidence, exploring new moderators and mediators, and investigating the implications of different CEO overconfidence operationalizations as well as implications for practice.
Burkhard, B., Sirén, C., van Essen, M., Grichnik, D., Shepherd, D. (2022): Nothing ventured, nothing gained: A meta-analysis of CEO overconfidence, strategic risk taking, and performance. In: Journal of Management (JOM), doi:_10.1177/01492063221110203
Christen, T., Hess, M., Grichnik, D., Wincent, J. (2022): Value-based pricing in digital platforms: A machine learning approach to signaling beyond core product attributes in cross-platform settings. In: Journal of Business Research (JOBR), JOBR-D-21-03876R2.
Hudecheck, M., Siren, C., Grichnik, D., & George, G. (2021): Adversity and Venture Performance: Is Adverse Media Coverage Really That Bad for Entrepreneurial Ventures? In: Frontiers of Entrepreneurship Research (FER), BCERC Conference. Best Paper Proceedings.
Grichnik, D. & Hess, M. (2020). Startup Navigator – Guiding Your Entrepreneurial Journey. London: Red Globe Press.
Antretter, T., Blohm, I., Sirén, C., Grichnik, D., Malmstrom, Malin., & Wincent, J. (2020, November 02). Do Algorithms Make Better – and Fairer – Investments Than Angel Investors? Harvard Business Review.
Blohm, I., Antretter, T., Sirén, C., Wincent, J., & Grichnik, D. (2020). It’s a Peoples Game, Isn’t It?! A Comparison between the Investment Returns of Business Angels and Machine Learning Algorithms. Entrepreneurship: Theory and Practice.
Antretter, T., Sirén, C., Grichnik, D., & Wincent, J. (2020). Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks. Journal of Business Venturing, 35(5).
Hudecheck, M., Sirén, C., Grichnik, D., & Wincent, J. (2020, April 17). Monitoring the COVID-19 Crisis From Space. MIT Sloan Management Review.
Hudecheck, M., Sirén, C., Grichnik, D., & Wincent, J. (2020, March 09). How companies can respond to the Coronavirus. MIT Sloan Management Review.
Sirén, C., He, V. F., Wesemann, C. H., Jonassen, Z., Grichnik, D., & von Krogh, G. (2020). Leader Emergence in Nascent Venture Teams: The Critical Roles of Individual Emotion Regulation and Team Emotions. Journal of Management Studies.
Grichnik, D. (2019): Entrepreneurial Living – 7 Steps to Entrepreneurial Happiness. London: Union Bridge Books.
Brinckmann, J., Grichnik, D., Villenueva, J., & Singh, L. (2019). Sources of strategic flexibility in new ventures: an analysis of the role of resource leveraging practices. Strategic Entrepreneurship Journal.
Antretter, T., Blohm, I., Grichnik, D., & Wincent, J. (2019). Predicting new venture survival: A Twitter-based machine learning approach to measuring online legitimacy. Journal of Business Venturing Insights, 11.
Palmié, M., Huerzeler, P., Grichnik, D., Keupp, M. M., & Gassmann, O. (2018). Some principles are more equal than others: Promotion‐ versus prevention‐focused effectuation principles and their disparate relationships with entrepreneurial orientation. Strategic Entrepreneurship Journal, 13(1), 93-117.
Sirén, C., Patel, P. C., Örtqvist, D., & Wincent, J. (2018). CEO burnout, managerial discretion, and firm performance: The role of CEO locus of control, structural power, and organizational factors. Long Range Planning.
He Fang, V., Sirén, C., Singh, S., Solomon, G., & von Krogh, G. (2018). Keep calm and carry on: Emotion regulation in entrepreneurs’ learning from failure. Entrepreneurship Theory and Practice, 42(4), 605-630.
Sirén, C., Hakala, H., Wincent, J., & Grichnik, D. (2017). Breaking the routines: Entrepreneurial orientation, strategic learning, firm size, and age. Long Range Planning, 50(2), 145-167.
Thorgren, S., Sirén, C., Nordström, C., & Wincent, J. (2016). Hybrid entrepreneurs' second-step choice: The nonlinear relationship between age and intention to enter full-time entrepreneurship. Journal of Business Venturing Insights, 5, 14-18.