• Innovation or Overinvestment? Overconfident Managers, Corporate Social Responsibility, and Operating Performance

Abstract

Purpose – The objective of this research is to analyze the impact of overconfident managers on corporate social responsibility (CSR) with the aim of understanding whether overconfident managers’ engagement in CSR activities is an innovation or an overinvestment.

Design/methodology/approach – This research adopted option exercising conditions as the method for measuring managerial overconfidence, and established score criteria for evaluating a firm’s performance in its engagement in innovative CSRs.

Findings – Firstly, firms with managers that have characteristics of overconfidence have a relative tendency to engage in CSR activities. Secondly, the engagement of overconfident managers in CSR brings a negative impact to the long-term performance of firms. Thirdly, if managers with a high-degree of overconfidence focus their social responsibilities on CSR activities relating to environmental topics, product innovation, and suchlike, this can enhance the operating per-formance of firms.

Research limitations/implications – This research only adopted the method of strike price behaviors to measure the degree of managerial overconfidence and did not use other methods commonly used by past literature to measure overconfidence (the self-presentations of CEOs in the media).

Practical implications/Social implications – Overconfident managers can engage in innovative CSR activities to enhance the operating performance of firms.

Originality/value – The method of encouraging innovation to prompt managers with a high degree of overcon-fidence to focus on CSR activities in the aspects of environmental topics, product innovation, and suchlike not only helps to realize the sustainable spirit of corporate social responsibility but can also increase the value of firms involved.

Keywords – Managerial overconfidence, Corporate social responsibility, Financial performance