CEO overconfidence and corporate misconduct: Evidence from federal law violations

Authors

Md Ismail Haidar, The University of Texas Rio Grande Valley
Saha Iqbal Hossain

Document Type

Article

Publication Date

3-2026

Abstract

This study investigates the effect of CEO overconfidence on violations of laws protecting nonfinancial stakeholders such as consumers, employees, and the environment. Using vested in-the-money stock options as a proxy for overconfidence, we find that firms led by overconfident CEOs exhibit significantly lower levels of misconduct. The effect is stronger in firms with effective corporate governance frameworks and weaker in financially constrained firms. We identify three mechanisms through which CEO overconfidence curbs corporate misconduct: reputational sensitivity, a preference for challenging projects over unethical shortcuts, and enhanced visibility and transparency. These findings suggest that CEO overconfidence, though often perceived as a liability, may also constrain unethical corporate behavior.

Comments

Original published version available at https://doi.org/10.1016/j.irfa.2026.105154

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Publication Title

International Review of Financial Analysis

Recommended Citation

Haidar, M.I. and Hossain, S.I. (2026) “CEO overconfidence and corporate misconduct: Evidence from federal law violations,” International Review of Financial Analysis, p. 105154. https://doi.org/10.1016/j.irfa.2026.105154.