CEO OVERCONFIDENCE AND CORPORATE INNOVATION: THE ROLE OF BUSINESS GROUP AFFILIATION

This study examines the relation between CEO overconfidence and corporate R&D intensity in an emerging market setting. Drawing on upper echelons theory and behavioral corporate finance, overconfident CEOs are expected to allocate greater firm resources to innovation activities characterized by uncertainty and long-horizon payoffs. Using a panel of 1,729 nonfinancial firms listed on National Stock Exchange of India from 2009 to 2023, CEO overconfidence is measured using investment- and stock-purchase-based proxies, and its relation with Research and development expenditure, scaled by assets and sales, is analyzed. According to baseline findings, R&D intensity across all possible specifications are positively and strongly related with CEO overconfidence. The findings remain robust to additional firm, board, and CEO controls, alternative scaling measures, and dynamic panel estimation using a two-step system GMM to address endogeneity concerns. Subsample analyses show that the positive relationship is stronger among business group affiliated firms than among standalone firms. The evidence highlights the role of executive cognitive traits in shaping innovation policy and underscores the importance of institutional context in understanding managerial effects on corporate investment decisions.