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Why Overconfident CEOs are Good for Business

smug-employee-11101302 Credit: Dreamstime.com

Think your company's CEO is an arrogant jerk? That might be a good thing.

A University of California, Irvine study suggests overconfident CEOs help companies achieve greater levels of innovation by pursuing riskier projects with potentially greater rewards.

Based on data from 1993 through 2003, the researchers determined that overconfident CEOs in innovative industries such as pharmaceuticals and high-tech companies produce greater accomplishments than other managers because they are likely to dive into the development of new products with less fear of failure.

Professor David Hirshleifer, one of the study's co-authors, said managers who have a bureaucratic mentality of protecting themselves against blame tend to avoid big risks and miss out on the big payoffs from success.

“An overconfident CEO underestimates the possibility that he or she might be wrong," Hirshleifer said.

There is also evidence that arrogant managers are more effective in converting growth opportunities into value, according to Hirshleifer.

[The Anatomy of the Perfect CEO]

"Our surmise is that overconfident CEOs are more ready to take on risky projects that are very promising but could also easily fail," he said. "Less confident CEOs may shy away from such projects, missing out on such growth opportunities."

Despite the positives that can come from a brash CEO, Hirshleifer said they do have their drawbacks.

"A manager who is too detached from reality may plunge his firm into doom through impetuosity or stubbornness," Hirshleifer said.

The study was co-authored by Angie Low, from Nanyang Technological University in Singapore, and Siew Hong Teoh, from UC Irvine's Paul Merage School of Business.

Follow Chad Brooks on Twitter @cbrooks76 or BusinessNewsDaily @BNDarticles. We're also on Facebook & Google+.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.