Overconfidence, Compensation Contracts, and Capital Budgeting
Publication
, Journal Article
Gervais, S; Heaton, JB; Odean, T
Published in: Journal of Finance
October 1, 2011
A risk-averse manager's overconfidence makes him less conservative. As a result, it is cheaper for firms to motivate him to pursue valuable risky projects. When compensation endogenously adjusts to reflect outside opportunities, moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off. Overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects. Still, too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk. © 2011 the American Finance Association.
Duke Scholars
Altmetric Attention Stats
Dimensions Citation Stats
Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
October 1, 2011
Volume
66
Issue
5
Start / End Page
1735 / 1777
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
Citation
APA
Chicago
ICMJE
MLA
NLM
Gervais, S., Heaton, J. B., & Odean, T. (2011). Overconfidence, Compensation Contracts, and Capital Budgeting. Journal of Finance, 66(5), 1735–1777. https://doi.org/10.1111/j.1540-6261.2011.01686.x
Gervais, S., J. B. Heaton, and T. Odean. “Overconfidence, Compensation Contracts, and Capital Budgeting.” Journal of Finance 66, no. 5 (October 1, 2011): 1735–77. https://doi.org/10.1111/j.1540-6261.2011.01686.x.
Gervais S, Heaton JB, Odean T. Overconfidence, Compensation Contracts, and Capital Budgeting. Journal of Finance. 2011 Oct 1;66(5):1735–77.
Gervais, S., et al. “Overconfidence, Compensation Contracts, and Capital Budgeting.” Journal of Finance, vol. 66, no. 5, Oct. 2011, pp. 1735–77. Scopus, doi:10.1111/j.1540-6261.2011.01686.x.
Gervais S, Heaton JB, Odean T. Overconfidence, Compensation Contracts, and Capital Budgeting. Journal of Finance. 2011 Oct 1;66(5):1735–1777.
Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
October 1, 2011
Volume
66
Issue
5
Start / End Page
1735 / 1777
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment