CEO overconfident behavior, investment decisions and company value in Indonesia

Economic Annals-ХХI: Volume 194, Issue (11-12), Pages: 49-58

Citation information:
Fionita, I., Kufepaksi, M., & Hasnawati, S. (2021). CEO overconfident behavior, investment decisions and company value in Indonesia. Economic Annals-XXI, 194(11-12), 49-58. doi: https://doi.org/10.21003/ea.V194-06

Ita Fionita
PhD (Finance),
Student,
Faculty of Finance and Business,
Lampung University
Jl. Prof. Dr. Ir. Sumantri Brojonegoro No.1, Gedong Meneng, Kec. Rajabasa, Kota Bandar Lampung, Lampung, 35145, Indonesia
viefionita@gmail.com
ORCID ID: https://orcid.org/0000-0002-0626-6964

Mahatma Kufepaksi
PhD (Finance),
Professor,
Faculty of Economics and Business,
Lampung University
Jl. Prof. Dr. Ir. Sumantri Brojonegoro No.1, Gedong Meneng, Kec. Rajabasa, Kota Bandar Lampung, Lampung, 35145, Indonesia
mahapaksi@gmail.com (Corresponding Author)
ORCID ID: https://orcid.org/0000-0001-8370-6153

Sri Hasnawati
PhD (Finance),
Lecturer,
Faculty of Economics and Business,
Lampung University
Jl. Prof. Dr. Ir. Sumantri Brojonegoro No.1, Gedong Meneng, Kec. Rajabasa, Kota Bandar Lampung, Lampung, 35145, Indonesia
sri.hasna2015@gmail.com
ORCID ID: https://orcid.org/0000-0001-7235-7023

CEO overconfidence, investment decisions and firm value in Indonesia

Abstract. This study examines the effect of CEO overconfident behaviour on investment decisions with a behavioural finance theory-based approach, then, examines the effect of investment decisions on firm value with a traditional finance theory approach. Managers who are overconfident are the cause of investment deviations, investment sensitivity, and overestimated project returns that actually affect the value of the company. This study uses 175 non-financial companies on the Indonesia Stock Exchange led by the same CEO during the 2015-2019 period. Data analysis in this study was carried out using the Partial Least Square (PLS) method. PLS is a method of solving structural equation modelling (SEM) which in this case (according to the research objectives) is more precise than other SEM techniques.
The results showed that the CEO’s overconfident behaviour had a significant effect on firm value with investment decisions as a mediating variable. This means that the CEO’s overconfident behaviour is able to increase firm value through investment decisions as a mediating variable.

Keywords: Overconfident CEO; Firm Value; Investment Decisions; Investment

JEL Classifications: J13; O41

Acknowledgements and Funding: We would like to thank Prof. Einde Evana and Prof. Satria Bangsawan for the valuable comments and suggestions.

Contribution: The authors contributed equally to this work.

Data Availability Statement: The dataset is available from the authors upon request.

DOI: https://doi.org/10.21003/ea.V194-06

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Received 19.08.2021
Received in revised form 11.09.2021
Accepted 20.09.2021
Available online 27.12.2021