S-Space College of Business Administration/Business School (경영대학/대학원) Dept. of Business Administration (경영학과) Theses (Ph.D. / Sc.D._경영학과)
CEO Hubris, Governance Structure and Organizational Outcomes
- 경영대학 경영학과
- Issue Date
- 서울대학교 대학원
- hubris; corporate governance; corporate social responsibility; firm innovation; managerial discretion; upper echelons theory
- 학위논문 (박사)-- 서울대학교 대학원 : 경영학과, 2016. 8. 박철순.
- CEO hubris is an CEOs exaggerated belief in his or her own judgment that may deviate from objective standards. Since Roll (1986) argued that CEO hubris is a way to explain the losses of acquiring firms on the announcement of a merger or an acquisition, a series of related studies have been conducted. Previous studies have mainly examined the negative impact of CEO hubris on various managerial decisions. That is, hubris–infected CEOs often make unreasonable, unsound and overly optimistic decisions resulting poor firm performance. However, recent research on CEO hubris called for research going beyond the dark side of hubris. Some of the recent efforts in the field have started challenging to harmful effects of hubris, saying that CEO hubris may have potential benefits to particular firm actions. In this regard, I set aside negative frame of hubris and try to explore the effect of executive hubris on long-term firm performance, especially on corporate social responsibility and firm innovation.
In the first empirical study, I suggest that CEO hubris may be a non–economic motivation for CSR, leading firms to pursue socially responsible activities. For the last decade, most CSR literature has focused on the relationship between CSR and firm performance, but the formers influence on the latter has been remained inconclusive at best. This inconsistency may partly due to the fact that firms engage in CSR activities for different motivations. That is, not all firms pursue CSR activities for economic motivations. In the first study, I thus investigate the effects of CEO hubris as non-economic motivations for CSR and attempt to answer the following two related questions: 1) how CEO hubris affects CSR
and 2) on which types of CSR hubristic CEOs focus. I examined 178 firms in South Korea and the results showed CEO hubris positively related to CSR. Of particular interest was the finding that hubristic CEOs focused on CSR activities that targeted secondary rather than primary stakeholders. Whereas CSR targeting primary stakeholders focused on customers, employees, suppliers and shareholders, CSR for secondary stakeholders focused on philanthropy, environmental protection and social contribution. While these activities for CSR targeting secondary stakeholders have no direct relationship to corporate survival and competitiveness, hubristic CEOs use these activities to confidently showoff themselves. This indicates that a hubristic CEO uses CSR activities as a means to attract public attention and thereby satisfy his/her narcissistic needs.
The second study examines the effect of CEO hubris on firm innovation and its boundary conditions. I suggest that hubris is not always harmful to firms, but rather beneficial, especially when risk taking is necessary. Because hubristic managers are overconfident in their own efficacy in bringing about success, they inclined to overestimate the expected payoffs from innovative endeavors, underestimating associated risk and uncertainty. On that account, hubristic managers actively pursue innovative activities which enhance firm innovation. Furthermore, I investigate the moderating role of corporate governance structure with two different perspectives that are (1) as an ability perspective to restrain managerial discretion of CEOs and (2) as a motivation perspective to encourage CEOs to pursue innovative activities. I examined 183 firms in South Korea and the results showed that hubris was positively related to firm innovation and the positive relationship between hubris and firm innovation varied with CEOs ownership and board independence. High level of executive shareholding weakens the relationship between CEO hubris and innovation whereas independent board strengthens the relationship between hubristic CEOs and innovative activities, both supporting motivation perspective.
Based on two empirical studies, this dissertation has provided another aspects on CEO hubris literature, challenging to dark side of CEO hubris.