The Overconfidence Paradox: Managerial Overconfidence, Risk, and Efficiency of Public Sector Banks in India
Published: 2025
Author(s) Name: Diksha Saini, Balwinder Singh |
Author(s) Affiliation: University School of Financial Studies, Guru Nanak Dev University, Amritsar, Punjab, India.
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Abstract
This study aims to investigate the impact of behavioural biases of top managers measured through managerial overconfidence affect the risk and efficiency of PSBs in India. To achieve this objective, the independent variable managerial overconfidence is measured using two proxies: Loan Growth rate (LGR) and Net Interest Margin (NIM). The performance of banks is measured in terms of Bank Risk and Efficiency. Bank Risk is measured using Non-Performing Loan (NPL) ratio and efficiency is measured using DEA (Data Envelopment Analysis). This study has been conducted on 20 public sector banks in India over the period of 2016–2018. The Panel regression findings demonstrate that CEO overconfidence has a significant impact on the risk exposure and efficiency of Indian banks. The findings provide significant novel insights into the banking and finance literature that managerial overconfidence exerts a significant influence on bank risk and efficiency. As far as the authors are aware, this research endeavour is pioneering in its investigation of the association between CEO overconfidence and bank performance in the Indian context.
Keywords: Overconfidence, Risk, Efficiency, Loan Growth Rate, Net Interest Margin, Public Sector Banks, India
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