Growing Pains or Confidence? CEO Relative Age, Stress, and Firm Performance

Abstract

CEOs face tremendous stress at work. Motivated by the psychological literature that self-efficacy helps people overcome stress, we examine if the self-efficacy of CEOs alleviates their stress and improves their firms’ performance. Using CEOs’ relative age, i.e., age in kindergarten due to state-level eligibility cutoff date, as a proxy for the CEOs’ self-efficacy, we find that CEOs with higher self-efficacy generate better firm performance, especially in high-stress situations such as industry downturn, expansion into a new sector, mergers and acquisitions, and innovation. While existing literature documents negative impacts of CEO overconfidence, our findings suggest that the confidence of CEOs can be beneficial to their firms.