Better Innovators or More Innovators? Managerial Overconfidence and Corporate R&D

The aim of this paper is to study the influence of CEOs' overconfidence on corporate R&D. We analyze a sample of 766 firms from the UK, France, Germany, Switzerland, Italy, Spain and the Netherlands between 2008 and 2013. We use three measures of managerial overconfidence: the press coverage of CEOs, his/her age and his/her experience in the industry. Our results show that the firms run by overconfident managers actually invest more in R&D expenditures, even after controlling for country, industry and time factors. Overconfident managers not only spend more on R&D but also amplify the effect of financial determinants of R&D such as firm liquidity or profitability. Nevertheless, overconfident managers do not invest efficiently in R&D and these expenditures can negatively affect the value of the firm