Effects of CEO Overconfidence to Equity Incentives on Sharia Firms in Indonesia and Malaysia
This study aims to research about the effects of CEO overconfidence on equity incentives in sharia firms listed on the Indonesia and Malaysia Stock Exchange from 2019 to 2023. CEO overconfidence is measured using two proxies: ownership value (management shareholding) and leverage ratio. Equity incentives are assessed using a dummy variable indicating the presence of stock-based compensation. The study also includes financial performance ratios as control variables—Return on Assets (ROA), Earnings Per Share (EPS), Price to Book Value (PBV), and Price to Earnings Ratio (PER). Panel data regression employing the Seemingly Unrelated Regression (SUR) approach is used for analysis. The results indicate that both ownership value and leverage have a positive and significant impact on equity incentives, suggesting that overconfident CEOs are more likely to receive stock-based compensation. Meanwhile, ROA, EPS, and PBV show no significant impact, while PER has a significant negative impact. These findings highlight the importance of CEO psychological traits in shaping executive compensation structures and contribute to the development of behavior-based agency theory in the context of Sharia enterprises.
Keywords: Agency Theory, Equity Incentives, Overconfidence, Ownership Value, Sharia Firms
