Are Overconfident CEOs Better Innovators? David A. Hirshleifer, Angie Low, Siew Hong Teoh This paper examines whether overconfident CEOs are better innovators. Previous research suggests that overconfident managers may take greater risks, which could benefit shareholders by increasing investment in risky projects. Using options- and press-based proxies for CEO overconfidence, the authors find that over the 1993-2003 period, firms with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater innovative success for given R&D expenditure. Overconfident managers only achieve greater innovation than non-overconfident managers in innovative industries. The findings suggest that overconfidence may help CEOs exploit innovative growth opportunities. The authors use two measures of CEO overconfidence: one based on options exercise behavior and another based on press coverage. They measure firm innovation using R&D expenditures and patenting activities. They find that overconfident CEOs invest more heavily in R&D and achieve greater innovation as measured by patent and citation counts. Greater innovative output is not just a result of greater resource input; overconfident CEOs achieve greater innovative success even after controlling for the level of R&D expenditure. The results suggest that overconfident CEOs are better innovators, despite the potential for overpaying to achieve increased citation counts, which could reduce firm value. The authors also find that overconfident CEOs are more likely to take risks and invest in innovative projects. They examine the relationship between CEO overconfidence and firm volatility, finding that overconfident CEOs are associated with higher stock return volatility. They also find that overconfident CEOs are associated with higher R&D expenditures and patenting activity. The results are consistent with models that imply high benefits to overconfidence when innovative growth opportunities are present. The authors also find that overconfident CEOs are more likely to be in innovative industries. They test the robustness of their findings and find that the results are consistent across different measures and samples. The findings suggest that overconfident CEOs are better innovators, and that overconfidence may help CEOs exploit innovative growth opportunities.Are Overconfident CEOs Better Innovators? David A. Hirshleifer, Angie Low, Siew Hong Teoh This paper examines whether overconfident CEOs are better innovators. Previous research suggests that overconfident managers may take greater risks, which could benefit shareholders by increasing investment in risky projects. Using options- and press-based proxies for CEO overconfidence, the authors find that over the 1993-2003 period, firms with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater innovative success for given R&D expenditure. Overconfident managers only achieve greater innovation than non-overconfident managers in innovative industries. The findings suggest that overconfidence may help CEOs exploit innovative growth opportunities. The authors use two measures of CEO overconfidence: one based on options exercise behavior and another based on press coverage. They measure firm innovation using R&D expenditures and patenting activities. They find that overconfident CEOs invest more heavily in R&D and achieve greater innovation as measured by patent and citation counts. Greater innovative output is not just a result of greater resource input; overconfident CEOs achieve greater innovative success even after controlling for the level of R&D expenditure. The results suggest that overconfident CEOs are better innovators, despite the potential for overpaying to achieve increased citation counts, which could reduce firm value. The authors also find that overconfident CEOs are more likely to take risks and invest in innovative projects. They examine the relationship between CEO overconfidence and firm volatility, finding that overconfident CEOs are associated with higher stock return volatility. They also find that overconfident CEOs are associated with higher R&D expenditures and patenting activity. The results are consistent with models that imply high benefits to overconfidence when innovative growth opportunities are present. The authors also find that overconfident CEOs are more likely to be in innovative industries. They test the robustness of their findings and find that the results are consistent across different measures and samples. The findings suggest that overconfident CEOs are better innovators, and that overconfidence may help CEOs exploit innovative growth opportunities.