CEOs versus CFOs : Managerial Overconfidence and Cost Behavior

Using a large sample of U.S. firms, we provide evidence on the interplay between CEO overconfidence and CFO overconfidence on cost behavior in the setting of cost stickiness. We predict that overconfident CEOs or CFOs overestimate future demand, which makes them more likely to keep excess resources when current sales decline, resulting in greater cost stickiness of SG&A costs. Furthermore, we find that, although both CEO overconfidence and CFO overconfidence are positively associated with cost stickiness, after controlling for CFO overconfidence, CEO overconfidence has no effect on SG&A cost stickiness, suggesting that CEO overconfidence can be constrained by CFO non-overconfidence in cost management decisions. In addition, we find that the relation between CFO overconfidence and cost stickiness is more pronounced in firms with more powerful CFOs. Our results highlight the important role CFOs play in cost management decisions