Presentation date: 15:10-17:00, December 22nd, 2022
Presentation room: 7F02
Speaker: Chih-Yung Lin
Professor of Finance
Department of Information Management and Finance
National Yang Ming Chiao Tung University
Title: Overconfident Customers and Supplier Firm Value
Abstract:
This paper examines whether the overconfidence of a downstream customer firm’s CEO affects the value of its upstream supplier firms. We find that CEO overconfidence positively influences investor opinion regarding upstream supplier firm value. Further examination of potential mechanisms shows that higher valuation is more prominent when overconfident customer firms invest more and be innovative. The value-enhancing effect is easier to spill over to investors when the supplier has a more transparent information environment. We show that the positive relation is causal and robust using exogenous variations from death, illness, and retirement of the CEO and from a crisis shock. Overall, our findings suggest that serving overconfident customers benefits shareholders by improving investor recognition and gaining a positive spillover effect from customer firms’ aggressive search for growth opportunities.
JEL: G32, G34, G41, M14, Q51
Key words: CEO overconfidence; supply chains; firm value; investor recognition effect; R&D intensity.