Finance seminar - Professor Brandon Julio - University of Oregon

A seminar by Professor Brandon Julio from University of Oregon

Title: CEO Overconfidence and Corporate Investment Under Uncertainty

Abstract: We examine the implications of managerial overconfidence for investment timing under uncertainty. When managers hold biased beliefs about the volatility of their own firm's project values, they invest prematurely by undervaluing the option to wait. Our model generates testable predictions: overconfident managers exhibit weaker investment responses to firm-level uncertainty shocks, invest at lower Tobin's Q thresholds, and produce investment paths that are less volatile over an uncertainty cycle. Using a panel of U.S. firms from 1992 to 2024, we find strong empirical support for these predictions. The interaction between firm-level idiosyncratic volatility and overconfidence proxies is positive and highly significant, implying that overconfident CEOs exhibit substantially attenuated investment reductions when their firms face elevated uncertainty. The results are specific to firm-level volatility measures and do not extend to aggregate uncertainty, consistent with the theoretical prediction that miscalibration operates through beliefs about firm-own uncertainty.

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