CEO Confidence Survey - Explained
What is the CEO Confidence Survey?
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Table of ContentsWhat is the CEO Confidence Survey?How is the CEO Confidence Survey Used?Academic Research on CEO Confidence Survey
What is the CEO Confidence Survey?
The CEO Confidence Survey is a monthly survey of 100 executives from across the United States. The Conference Council, a global business membership and research association working in the public interest, orchestrates the survey. It conducts, analyzes and makes the report of the survey. The objective is to measure the economic expectations of CEOs, their concerns about their businesses, and their views on economic trends. The CEO Confidence Survey competes with the CEO confidence index.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
How is the CEO Confidence Survey Used?
Based on a survey of about 100 managers in various industries, this quarterly report describes in detail the positions and expectations of managers concerning the overall economy and their own industries. It is electronically distributed in PDF format. In 2013, the survey was extended to include executives from Fortune 1,000 companies and members of the Conference Board. The Conference Council asks management three questions. There are five possible answers to the question. The score for each question is determined by assigning the answers to the following values and calculating the average:
- much better - 100;
- moderately better - 75;
- the same - 50;
- slightly worse - 25;
- significantly worse - 0.
The results are then averaged for questions 1, 2 and 3. The survey asks managers to consider: current economic conditions compared to 6 months ago and the expectations for 6 months in the future. The Survey is usually an important indicator of economic activity, for example, changes in GDP growth used by investors and analysts in their macroeconomic analysis.
Academic Research on CEO Confidence Survey
- Does overconfidence affect corporate investment? CEO overconfidence measures revisited, Malmendier, U., & Tate, G. (2005). European Financial Management, 11(5), 649-659. This paper makes an analysis of the BCF (Behavioral Corporate Finance) as a growing research domain with respect to the corporate investment distortions because of CEO (Chief Executive Officer) overconfidence. The authors review the experimental evidence and related psychology on overconfidence. Then, they briefly state the effect of overconfidence on corporate investment. They provide evidence on the relation between the press portrayals of the CEO and investment decisions made over-confidently. It is considered to be the outsiders' perception instead of his own actions. The authors investigate the overconfidence effect on corporate investment and suggest a new approach to measure it.
- Who makes acquisitions? CEO overconfidence and the market's reaction, Malmendier, U., & Tate, G. (2008). Journal of financial Economics, 89(1), 20-43. This paper investigates whether CEO overconfidence assists in explaining merger decisions. The overconfident CEOs overestimate that they can generate returns. Consequently, the target firms are overpaid by them and they accept the challenge of mergers. If they get access to internal financing, there are the strongest effects. The authors evaluate these predictions with the help of 2 proxies for overconfidence, i.e. their personal over investment and press portrayal. If the classification of the CEO is made as overconfident, an acquisition is likely to make sixty-five percent higher. The market reaction is fairly more negative at the announcement of a merger than for non-overconfident CEOs.
- CEO confidence and forced turnover, Campbell, C., Johnson, S., Rutherford, J., & Stanley, B. (2009). J Financ Econ. The latest theory anticipates that excessively diffident (reserve) CEOs (Chief Executive Officers) should have greatly forced turnovers as compared to the moderately overconfident CEOs with almost sixty-seven percent higher hazard rate. Comparatively, the marginal turnover hazard rate is sixty-seven percent for a CEO who produces industry-adjusted stock returns 2-standard deviations under the mean. As far as the non-value maximizing CEOs terminated by boards are concerned, the results are greatly consistent with the perspective of the interior best level of managerial overconfidence which increases firm value.
- CEO overconfidence and management forecasting, Hribar, P., & Yang, H. (2016). Contemporary Accounting Research, 33(1), 204-227. This article examines the effects of overconfidence on management forecasts. With the help of 2 dimensions of overconfidence (miscalibration and over-optimism) to make predictions, the authors check, (1) the overconfidence increases the probability of issuing a forecast or not, (2) overconfidence increases the optimism in forecasts of the management or not and (3) overconfidence increases the forecast precision or not. Using pressed-based measures and these options to proxy for a person's overconfidence, the authors find it helpful for satisfying all 3 research queries.
- CEO confidence and stock returns, Best, R. J. (2008). International Journal of Business Research, 8(3), 113-17. This paper examines whether CEO confidence announcements consist of something new for investors. Information asymmetry states that insiders should have better knowledge about the firm prospects as compared to the participants of the average stock market. So, the CEO perceptions announcements may give valuable insights to the investors. The author finds high correlations between the announcement date returns on 3 main stock market indexes and CEO outlook changes. These correlations are higher and more important for indexes of smaller firms supposing that the CEO confidence announcements give valuable and unique information to stock markets.
- Confidence and the transmission of government spending shocks, Bachmann, R., & Sims, E. R. (2011). (No. w17063). National Bureau of Economic Research. The confidence of business concerns and households is an important element in transmitting the shocks of fiscal policy into economic activity. The authors apply this proposition and use standard structural VARs with aggregate output and government spending to include statistical measures of business or consumers confidence. They also calculate the nonlinear VAR features for differential effects of governance-spending in recessions and normal periods. They argue that the spending composition (not the confidence) matters in transmitting the spending shocks in downturns. These shocks anticipate future productivity by a persistent rise in government investment.
- Marketing accountability: Linking marketing actions to financial results, Stewart, D. W. (2009). Journal of Business Research, 62(6), 636-643. In this paper, the author describes the role of marketing accountability and links marketing activities to financial performance. He highlights the importance of accountability that how it contributes value to the firm. He suggests establishing causal relations among the metrics of financial performance, marketing actions and intermediate marketing outcomes.
- CEO optimism and forced turnover, Campbell, T. C., Gallmeyer, M., Johnson, S. A., Rutherford, J., & Stanley, B. W. (2011). Journal of Financial Economics, 101(3), 695-712. This study, theoretically, shows that optimism can cause a risk-averse CEO (Chief Executive Officer) to select the 1st best investment level that optimizes shareholder value. This optimism leads him to underinvest or overinvest. So, if the BoD (Board of Directors) act in the favour of shareholders, CEOs with comparatively high or low optimism encounter a forced turnover higher probability than the ones who face moderate optimism. The author uses a big sample of turnovers. The findings are that there is strong statistical favour for this prediction. An interior best level of managerial optimism maximizes firm value.
- CEO credibility, perceived organizational reputation, and employee engagement, Men, L. R. (2012). Public Relations Review, 38(1), 171-173. This article investigates how, by linking the credibility of the CEO (Chief Executive Officer), employee engagement and employee inspection of organizational reputation, corporate leadership affects the internal public relations. The author conducts a survey of one hundred and fifty-seven employees from a Fortune five hundred company which shows that the credibility of the CEO has a positive association with employee engagement and organizational reputation. The findings are that the organisational reputation positively and significantly influences employee engagement. The organizational reputation perceived by employee completely mediates the effect of credibility of the CEO on employee engagement.
- CEO overconfidence, CEO dominance and corporate acquisitions, Brown, R., & Sarma, N. (2007). Journal of Economics and business, 59(5), 358-379. This paper evaluates the role of CEO (Chief Executive Officer) confidence and dominance in the decision of a firm for undertaking the acquisition. The authors argue that not only capturing CEO overconfidence is important, but also his ability to impose his views on the decisions of a firm. The authors use Australian data and logistic regression. The findings are that the CEO overconfidence and dominance, both, are important to explain the decision of another firms acquisition. This evidence is robust across 2 different corporate governance and financial systems. CEO dominance is as important as his overconfidence in this decision.
- CEO reputation: A key factor in shareholder value, Gaines-Ross, L. (2000). Corporate Reputation Review, 3(4), 366-370. On shareholder value, a newspaper can show the tremendous impact of the reputation of a CEO (Chief Executive Officer) which plays a vital role in determining the evaluation and response by external and internal audiences to a firm, whether through a response to a crisis, stock transaction and talent pool (best in the industry). This paper evaluates the effect of CEO reputation as per the stakeholders increasing expectations, the demand for messages delivered by the CEOs to their constituencies and the communication channels proliferation. These all factors, together, expand the role of a CEO, making his reputation even more critical to the success of a company.
- CEO overconfidence and innovation, Galasso, A., & Simcoe, T. S. (2011). Management Science, 57(8), 1469-1484. This research uses overconfidence measure on the basis of CEO (Chief Executive Officer) stock options exercise, to go through the relations between the corporate innovation standard measures and the revealed beliefs of CEO about future performance. The authors develop a model in which the CEOs innovate for providing evidence of their capabilities. Overconfident CEOs pursue innovation. They evaluate these predictions by applying on a panel of big publicly traded firms from 1980-1994. The findings are that there is a robust positive link between citation weighted patent counts and overconfidence in the fixed effects model as well as cross-sectional model. The overconfident CEOs tend to take their companies on a new technological way.