CEO Overconfidence and Firm Political Partisanship: Examining PAC Contributions of U.S. Firms in Manufacturing Industries
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Drawing on behavioral decision theory, this study examines how CEO overconfidence shapes firms’ partisan political contributions. Overconfident CEOs, due to their miscalibrated confidence in predicting uncertain future events such as electoral outcomes, are more likely to favor allocating political contributions to the party they expect to prevail, rather than diversifying across parties. Thus, we hypothesize that firms led by overconfident CEOs exhibit higher levels of political partisanship than those led by less confident CEOs, with this effect becoming more pronounced under conditions of high electoral uncertainty. Analyzing panel data on U.S. manufacturing firms’ PAC contributions from 2010 to 2020, we find support for the hypotheses. These findings contribute to CPA research by revealing the behavioral underpinnings of corporate partisanship and extend the literature on CEO overconfidence into the domain of nonmarket strategy.
Abstract
Drawing on behavioral decision theory, this study examines how CEO overconfidence shapes firms’ partisan political contributions. Overconfident CEOs, due to their miscalibrated confidence in predicting uncertain future events such as electoral outcomes, are more likely to favor allocating political contributions to the party they expect to prevail, rather than diversifying across parties. Thus, we hypothesize that firms led by overconfident CEOs exhibit higher levels of political partisanship than those led by less confident CEOs, with this effect becoming more pronounced under conditions of high electoral uncertainty. Analyzing panel data on U.S. manufacturing firms’ PAC contributions from 2010 to 2020, we find support for the hypotheses. These findings contribute to CPA research by revealing the behavioral underpinnings of corporate partisanship and extend the literature on CEO overconfidence into the domain of nonmarket strategy.