Finance Cluster Seminar: Lei Zhang
We study the informational role of overconfident CEOs, testing two hypotheses. Under the “leveling playing field” hypothesis, overconfident CEOs increase information disclosure and facilitate timely incorporation of information into stock prices, thereby lower information asymmetry between informed and uninformed investors. Under the “information obfuscation” hypothesis, overconfident CEOs issue overly optimistic estimates and misstate earnings in financial reporting, thereby increase information asymmetry between informed and uninformed investors. Our results support the leveling playing field hypothesis and reject the information obfuscation hypothesis. Overconfident CEOs are associated with lower analyst forecast dispersion, higher breadth of ownership, and lower informed trading intensity. Further, we examine the return predictability of short interest, and find that the (good) news in short interest (Boehmer, Huszar and Jordan, 2010) exists only among stocks with non-overconfident CEOs and disappears among stocks with overconfident CEOs. These findings imply that overconfident CEOs can help increase market efficiency and lower the mispricing of their company shares.
Prof Lei Zhang is currently an assistant professor of finance in the School of Business since 2009. He received his Bachelor degree in Mathematics from Fudan University, Master and Ph.D. degrees from INSEAD respectively. His research interests include mergers and acquisitions, corporate financing, capital structure and financial intermediaries. His works have been published in journals including The Journal of Financial Economics and Mathematical Finance.
Nanyang Business School staff profile here.