Corporate social responsibility and CEO overconfidence

Abstract

This thesis examines how CEO overconfidence is related to the level of corporate social responsibility (CSR) undertaken by firms. CSR works as a hedging instrument by mitigating negative effects of damaging events on firm value. Overconfident CEOs underestimate the risks faced by firms and do relatively less hedging. Thus, I expect CEO overconfidence to be negatively related to the level of CSR. This hedging hypothesis is further supported through analysis of institutional and technical components of CSR. Institutional components of CSR have a greater hedging opportunity over technical components. Using a sample of 15,379 US firm-year observations, I find a significant and negative relation between CEO overconfidence and the level of CSR, and this negative relation is stronger for institutional components relative to technical components of CSR