COO’s overconfidence and the firm’s inventory performance

Abstract

We explore whether and how a behavioural attribute of top manager in charge of operations, i.e. Chief Operating Officer (COO), affects the firm’s operations performance. We operationalise COO’s overconfidence as the behavioural attribute and use inventory leanness as the operational performance. We collect data from a large number of US manufacturing companies and use option-based proxies to operationalise the managerial overconfidence. Our analysis shows the following. First, the COO’s overconfidence significantly increases inventory leanness. We show that the direction of causality in the relationship between the COO’s overconfidence and inventory leanness is clear. That is, the COO’s overconfidence drives inventory leanness, not the other way around. Second, incorporating market competition into the analysis reveals that as the market becomes more competitive, an overconfident COO tends to reduce inventory and thus increases inventory leanness. That is, as an external factor, the market competition moderates the relationship between COO’s overconfidence and the firm’s inventory leanness.

Keywords:

• Chief Operating Officer (COO)
• overconfidence
• inventory leanness
• market competition

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Jaeseog Na

Jaeseog Na is a PhD candidate of Operations Strategy and Management Science at KAIST Business School in Seoul, Korea. His research interests are in operations management and the interface between corporate governance and inventory management.

Bowon Kim

Bowon Kim is Professor of Operations Strategy and Management Science at KAIST Business School in Seoul, Korea. His research interests are in operations management, supply chain management and value chain sustainability.

Jeongeun Sim

Jeongeun Sim is an assistant professor at College of Business, Kwangwoon University. Her research interests are in supply chain management and the interface between consumer behaviour and operations management.