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We use innovation premium (IP), proposed by Forbes, as a proxy for firm innovation to present evidence that firm value is positively associated with IP. The positive impact of the IP on firm value is amplified by overconfident CEOs, particularly in the high‐tech and biotech industries with a high proportion of intellectual capital and intangible assets. In a series of tests, we confirm that the results...
Research Summary
While real options theory has been applied with the optimality assumption, actual real options investments are made by managers, who are subject to cognitive biases, especially under uncertainty. In this article, we focus on one important type of cognitive bias, overconfidence, to provide new insights on real options literature. We argue that overconfident CEOs will invest less in...
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