Discussion paper

DP14929 Managerial Duties and Managerial Biases

Traits and biases of CEOs are known to significantly affect corporate outcomes. However, analyzing individual managers in isolation can result in misattribution. Our analysis focuses on the role of CEO and CFO overconfidence in financing decisions. We show that, when considered jointly, the distorted beliefs of the CFO, rather than the CEO, dominate in generating pecking-order financing distortions. CEO overconfidence still matters indirectly for financing as the CEO's (and not CFO's) type determines investors' assessment of default risk and the resulting financing conditions. Moreover, overconfident CEOs tend to hire overconfident CFOs whenever given the opportunity, generating a multiplier effect.


Malmendier, U, V Pezone and H Zheng (2020), ‘DP14929 Managerial Duties and Managerial Biases‘, CEPR Discussion Paper No. 14929. CEPR Press, Paris & London. https://cepr.org/publications/dp14929