CEO vs. Consumer Confidence: Investment, Financing, and Firm Performance

We find capital expenditures, merger activity, and net financing all increase with aggregate CEO and consumer confidence. However, while CEO confidence positively predicts future return on assets, consumer confidence is negatively related to ROA and sales growth as well as future forecast revisions and earnings surprises. Our findings suggest that irrationality manifests primarily on the investor side, with more rational/better informed managers using times of high consumer confidence to empire build. Corroborating this view, we find that a negative relation between consumer confidence and insider purchases by CEOs