Securities class actions (SCAs) often harm the subject rm's product market position and result in disciplinary actions against the CEO. This raises the question of why CEOs might engage in conduct that would give rise to a SCA. We propose one such explanation: executive overcon dence, which could cause an executive to recklessly, or intentionally, make imprudently overcon dent statements and/or to embellish nancial
reports, thereby exposing their companies to Rule 10b-5 SCAs. We hypothesize and show that CEO and non-CEO executive overcon dence increases the likelihood of a SCA. Managerial entrenchment worsens the impact of overcon dence whereas the enhanced monitoring and disclosure in SOX mitigates it. Reducing overcon dent CEOs' incentive compensation appears to diminish SCA-likelihood, potentially re
ecting a decrease in risk-taking. Overcon dence has some impact on the likelihood of a post-SCA CEO turnover.
Keyword: Overconfidence, Securities Class Actions, Governance
JEL Classification Code: G23, G32, G34
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[2014년 제 4차] Why do executives commit `fraud on the market'? Ex
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2014-12-12