@article{9093c859e1184a5282a6e6cf2b626612,
title = "CFO Overconfidence and Cost Behavior",
abstract = "Using a large sample of U.S. firms, we provide evidence of the effect of CFO overconfidence on firms{\textquoteright} resource adjustment decisions. After controlling for CEO overconfidence, we find CFO overconfidence is positively associated with cost stickiness. We also find that CFO power relative to the CEO increases the positive association between CFO overconfidence and cost stickiness. Our study contributes to our understanding of the important role of CFOs in operational decisions such as resource adjustment decisions. We also extend the literature on cost behavior by highlighting managerial characteristics as an important determinant of resource adjustment decisions. Our study has important practical implications. Unlike resource adjustment decisions driven by agency problems or other incentive-related issues, such decisions driven by managerial overconfidence cannot be addressed with incentive contract designs. Promising ways to mitigate overconfidence-driven resource adjustment decisions include making overconfident managers aware of their potential behavioral biases and challenging their expectations.",
keywords = "CFO, cost stickiness, managerial characteristics, overconfidence, resource adjustment",
author = "Chen, {Clara Xiaoling} and Julia Nasev and Wu, {Steve Yu Ching}",
note = "Funding Information: We thank Michal Mateˇjka (editor), Karen Sedatole (editor), and two anonymous reviewers for their helpful suggestions. We thank Mark Anderson, Rajiv Banker, Dmitri Byzalov, Bart Dierynck, Jeffrey Hales, Curtis Hall, Matthias Heinz, Carsten Homburg, Jeremy Lill, Hai Lu, Frank Moers, Kristina Rennekamp, Cathy Schrand, Stefan Thoenes, Marshall Vance, and Dan Weiss for valuable comments on earlier versions of this paper. We also thank workshop participants at Drexel University, Zhongnan University of Economics and Law, participants at the 2013 American Accounting Association Annual Meeting, 2013 Global Management Accounting Research Symposium (GMARS), 2013 Accounting Conference at Temple University, 2014 VHB Conference, 2015 American Accounting Association Management Accounting Section Midyear Meeting, and Aarhus University Accounting Group for their helpful comments on earlier versions of this paper. Clara Xiaoling Chen is grateful for generous financial support from the PricewaterhouseCoopers Fellowship, Fred and Virginia Roedgers Fellowship, and Lillian and Morrie Moss Professorship. Funding Information: We thank Michal Mat{\v e}jka (editor), Karen Sedatole (editor), and two anonymous reviewers for their helpful suggestions. We thank Mark Anderson, Rajiv Banker, Dmitri Byzalov, Bart Dierynck, Jeffrey Hales, Curtis Hall, Matthias Heinz, Carsten Homburg, Jeremy Lill, Hai Lu, Frank Moers, Kristina Rennekamp, Cathy Schrand, Stefan Thoenes, Marshall Vance, and Dan Weiss for valuable comments on earlier versions of this paper. We also thank workshop participants at Drexel University, Zhongnan University of Economics and Law, participants at the 2013 American Accounting Association Annual Meeting, 2013 Global Management Accounting Research Symposium (GMARS), 2013 Accounting Conference at Temple University, 2014 VHB Conference, 2015 American Accounting Association Management Accounting Section Midyear Meeting, and Aarhus University Accounting Group for their helpful comments on earlier versions of this paper. Clara Xiaoling Chen is grateful for generous financial support from the PricewaterhouseCoopers Fellowship, Fred and Virginia Roedgers Fellowship, and Lillian and Morrie Moss Professorship. Publisher Copyright: {\textcopyright} 2022, American Accounting Association. All rights reserved.",
year = "2022",
doi = "10.2308/JMAR-18-055",
language = "English (US)",
volume = "34",
pages = "117--135",
journal = "Journal of Management Accounting Research",
issn = "1049-2127",
publisher = "American Accounting Association",
number = "2",
}