Managerial Overconfidence: Evidence from Japanese CEOs

We test whether Japanese leading CEOs are optimistic and miscalibrated using 50 years of survey data conducted by the Nihon Keizai Newspaper on New Year’s Day. In a sense, this study is a complement to Ben-David, Graham and Harvey (2010), who find U.S. executives are severely miscalibrated using the 10 years of survey data. Our unique Japanese data provide an opportunity to examine CEO miscalibration under a different setting over a longer period of time. Though we use a completely different data set, our results are similar to Ben-David, Graham and Harvey (2010). However, we find several important differences. One of the interesting findings is the clear contrast of forecasts by CEOs between two different periods of Japanese economy: more conservative during the high growth period and more optimistic during the low growth period. Contrary to US CFOs, Japanese CEOs predict current trend would reverse. We also find Japanese CEOs are more optimistic and less miscalibrated than their U.S. counterparts. Corporate investment does not seem to increase with either optimism or miscalibration unlike the U.S. The performance of the portfolio based on CEOs’ recommendation is not better than the market average.