Kyoungwon Mo, Soo Yeon Park, Youngkwan Lim
This study examines whether CEO overconfidence would enhance capital expenditures, selling, general and administrative expenses, and corporate social responsibility (CSR) by preventing the CEO’s sunk-cost bias. Using data from publicly traded U.S. firms from 1992 to 2015, we find that CEO overconfidence is less influenced by the previous level of investment and leads to independent decision-making regarding expenditures and CSR. Moreover, we discovered that overconfident CEOs incur fewer expenditures by making an independent and sustainable judgment, not driven by sunk costs incurred in prior periods. We also found evidence that independent decision-making helps enable long-term sustainable management and decrease the cost burden that may arise from repeating and continuing previous CSR activities.