Managerial Power, Overconfidence, and Obfuscation in the Chairperson Statement: Evidence From the Indian Banking System

ABSTRACT This study explores the relationship between managerial power, overconfidence, and obfuscation in the Chairpersons' statements of Indian banks over the period 2009–2022. We hand collect Chairperson statements of public and private Indian banks and implement linguistic analysis techniques to identify the presence of obfuscation. Further, we employ logit and probit models to test the effect of managerial power, and the moderating role of managerial overconfidence, on the likelihood to obfuscate. We find a positive relationship between managerial power and obfuscation, showing that Chairpersons with more power are more likely to engage in obfuscation. When having greater power, Chairpersons would have more control over the disclosure process, might use complex language and reduce transparency, making it hard for investors and other stakeholders to assess the disclosed content. Interestingly, in the presence of managerial overconfidence the relationship is reversed; board members actively monitor and ensure transparency is maintained in the interest of stakeholders, and powerful Chairpersons respond to this active engagement by providing less obfuscated communication. As a result, managerial overconfidence creates an environment that encourages powerful Chairpersons to enhance transparency and reduce obfuscation. This study contributes to the literature exploring the effects of managerial power and overconfidence, bringing new evidence on their impact on obfuscation. The findings highlight the need to strike a balance between transparency, power, and overconfidence. This is crucial for banks in understanding the interplay between Chairpersons' power and managerial overconfidence, and it is important for stakeholders to enhance awareness of banks' disclosure and its determinants.