Managements' Overconfident Tone and Corporate Policies

This paper introduces a new measure of management overconfidence, overconfident tone, and shows its association with excess investments, larger share repurchases, and higher stock portions in CEO compensations. Overconfident tone is composed of abnormal positivity and abnormal certainty. They are calculated by dividing conference call transcripts into management parts and analyst parts, and separately analyzing tones using Loughran-McDonald (2011) Dictionary for corporate documents. The results are consistent with previous literature on CEO overconfidence, with overconfident tone associated with excess investment and larger share repurchase. We also test abnormal positivity and abnormal certainty with CEO’s exposure to firm-specific risk to confirm the viability of overconfident tone as a new measure of management overconfidence.