Should Overconfident Managers Engage in Corporate Social Responsibility Activities? Evidence from the Accounting Performance of the Banking Industry

This paper examines the impacts of banks that engage in corporate social responsibility (CSR) activities on the relationship between managerial overconfidence and bank performance. The sample consists of 136 financial institutions in 23 countries over the period of 2006-2012. Empirical results show that when this study controls for bank-specific factors, country-specific factors, and time effects, managerial overconfidence significantly raises banks’ return on equity. Similarly, engaging in CSR activities is beneficial in improving banks’ accounting performance. However, when banks are managed by overconfident chief executive officers (CEOs) or chief financial officers (CFOs), engaging in CSR activities harms the banks’ accounting performance. Key words: Over-confidence, corporate social responsibility, bank performance