Author(s): Kyoungwon Mo, Kyung Jin Park, YoungJin Kim
Managerial overconfidence is known as a cognitive bias which leads managers to overestimate their ability and judgments and induces riskier capital investments. Research explored the influence of managerial overconfidence on labor investment efficiency. Author found a significantly positive association between CEO overconfidence and labor overinvestment. This result indicates that overconfident managers tend to invest more in labor, thus worsening labor investment efficiency under labor overinvestment. Further analysis reveals that internal funds increase negative impact of the managerial overconfidence on labor investment efficiency.