Hubris as a predictor of financial distress in U.S. Banks

Abstract

This study is investigating the relationship between hubris and future financial performance in U.S. banks during the years before and after the financial crisis that occurred in 2008. The sample consists of 261 U.S. banks listed on NASDAQ and NYSE per year end 2016. In order to get a measure of hubris, the CEO letters of the banks is analysed in the text analysis software DICTION. From the output from DICTION a measure of hubris from previous studies is used to determine the amount of hubris in each of the banks. A regression analysis between variables regarding the future financial performance and hubris, along with control variables, is conducted in order to determine the relationship between hubris and future financial performance. The findings indicates that there is no significant relationship between hubris and the variables used as a proxy for future performance when looking at the whole sample. Even though there is a significant relationship between hubris and one of the variables when looking at the extreme values of hubris, the first hypothesis cannot be supported since the beta is positive while a negative beta was expected. There is also no significant difference between the years prior to and after the study, which means that the second hypothesis of the study cannot be supported either. The study contributes to the research field on CEO letters and their usefulness as a predictor of financial numbers. Furthermore, the study also contributes to the area of hubris and how a hubristic leader might impact a company.