Managerial overconfidence : interactions with corporate governance and firm performance.

Summary In the face of a rather negative view of managerial overconfidence in the academic literature in economics and management (analyzed in the first chapter of this thesis), we present more positive implications of this bias on the performance of firms. Thus, in Chapter 2 we conduct an empirical study that takes into account the endogeneity of managerial overconfidence and its contingency to contextual factors such as corporate governance and executive compensation. We show that when we correct for the endogeneity bias in the data (via the double difference method) we observe a positive relationship between managerial overconfidence and performance. Then, in Chapter 3 we propose a theoretical model that aims to present a potential mediator of this relationship. Our model predicts that an overconfident leader would introduce incentive tournaments within the managerial team more often than a rational leader. These tournaments would increase the total effort level of the managerial team members and thus improve the firm's performance. Finally, in Chapter 4 we show via a study of nascent entrepreneurs that two different types of confidence, confidence in one's own competence and confidence in the success of the entrepreneurial opportunity, have opposite effects on the probability of success of the entrepreneurial process. The first type has a positive effect while the second has a negative effect on the probability of creating a functioning business.