CEO Overconfidence and Investment Efficiency of Nigerian Listed Firms

This study investigates the relationship between CEO overconfidence and investment efficiency among listed firms in Nigeria, incorporating firm size, industry type, leverage, profitability, and growth opportunities as control variables. Grounded in upper echelons theory, agency theory, and behavioral corporate finance, the research employs an ex-post facto research design utilizing panel regression analysis across 148 listed firms on the Nigerian Exchange Group for the period 2011–2025. CEO overconfidence is measured through a composite index capturing earnings forecast bias, capital expenditure intensity, and insider stock holding patterns. Investment efficiency is operationalized using the Richardson (2006) residual investment model, which distinguishes between overinvestment and underinvestment deviations from expected investment levels. The descriptive statistics reveal considerable variation in both CEO overconfidence and investment efficiency across the sample, with overconfident CEOs constituting approximately 41% of firm-year observations. The correlation analysis indicates a significant positive association between CEO overconfidence and investment inefficiency. Panel regression results, estimated using the fixed effects model following the Hausman specification test, demonstrate that CEO overconfidence is significantly and negatively associated with investment efficiency (β = −0.1847, p < 0.01), suggesting that overconfident CEOs systematically deviate from optimal investment levels. Firm size and profitability exert positive effects on investment efficiency, while leverage serves as a disciplining mechanism that constrains overinvestment tendencies. Industry competition moderates the overconfidence–investment efficiency nexus, with firms in highly competitive sectors exhibiting weaker negative effects. Growth opportunities amplify the adverse impact of overconfidence on investment efficiency. Post-estimation checks confirm the robustness of findings through heteroscedasticity-corrected standard errors, serial correlation tests, and cross-sectional dependence diagnostics. The study contributes to the growing literature on behavioral corporate finance in emerging markets by providing empirical evidence that CEO psychological attributes significantly influence capital allocation decisions in the Nigerian context. The findings hold important implications for corporate governance design, board oversight mechanisms, and regulatory policy in developing economies.