Paulina Sutrisno, Sidharta Utama, Ancella Anitawati Hermawan and Eliza Fatima
In the context of a two-tier governance system, this study aims to investigate whether CEO overconfidence affects firm risk. In addition, this study examines the moderating role…
Abstract
Purpose
In the context of a two-tier governance system, this study aims to investigate whether CEO overconfidence affects firm risk. In addition, this study examines the moderating role of the founder CEO on CEO overconfidence and firm risk.
Design/methodology/approach
This study uses a composite score index of CEO overconfidence with a sample of nonfinancial firms listed on the Indonesia Stock Exchange from 2012 to 2019. It tests the research hypothesis with multiple linear regression analysis.
Findings
The findings indicate that CEO overconfidence reduces firm risk. In contrast, the founder CEO does not affect the relationship between CEO overconfidence and firm risk.
Research limitations/implications
This study supports the upper echelon theory that argues that firms’ top management affects firms’ outcomes and behaviors.
Practical implications
The top management team heavily affects firms’ outcomes and behaviors in a two-tier governance system. Furthermore, firms’ selection policy of overconfident CEOs will be improved because these CEOs can diversify firm risks more effectively.
Originality/value
To the best of the authors’ knowledge, this study is the first to examine the role of the founder in the relationship between CEO overconfidence and firm risk.
Details
Keywords
Paulina Sutrisno, Sidharta Utama, Ancella Anitawati Hermawan and Eliza Fatima
This study aims to examine the impact of founder or descendant chief executive officers (CEOs) on the relationship between tax avoidance and firms' future risk. This issue is…
Abstract
Purpose
This study aims to examine the impact of founder or descendant chief executive officers (CEOs) on the relationship between tax avoidance and firms' future risk. This issue is important because of an ongoing debate about founder and descendant CEOs' impacts, contributions and implications for firms.
Design/methodology/approach
This study uses a sample of publicly listed nonfinancial Indonesian firms in 2012–2019, most of which are family firms and adhere to a two-tier governance system that was understudied in previous studies. The authors use panel-random effect data regression for the statistical analysis.
Findings
The results demonstrate that founder or descendant CEOs do not affect the positive relationship between tax avoidance and firms' future risks.
Research limitations/implications
This research supports the upper-echelon theory, arguing that top management teams affect firms' strategic policies and outcomes.
Practical implications
CEOs play weaker roles in countries with a two-tier governance system than in a one-tier one. Additionally, in relation to Hofstede's cultural dimensions, Indonesia has collective and feminist characteristics that emphasize elements of togetherness and group so that firms reflect the firms' top management teams and not only CEOs.
Originality/value
This research fills a research gap on the role of founder and descendant CEOs in the relationship between tax avoidance and firms' future risks by analyzing firms in Indonesia, a country with a two-tier governance system and collective and feminine cultural characteristics.