Abstract: Corporate governance is a key driver of firm performance, and the role of managerial behavioral biases, most notably overconfidence, is still a relevant but understudied factor. This research investigates how corporate governance mechanisms combine with managerial overconfidence to impact firm performance. While sound governance arrangements—like independent boards, robust shareholder rights, and disclosure practices that are transparent—are known to boost accountability and decision-making, overconfident managers can counter these advantages by exaggerating their capacities, downplaying risks, and defying scrutiny. Employing both empirical methodology and theoretical discussion, this study examines whether effective corporate governance can alleviate the adverse implications of managerial overconfidence, including excessive risk-taking, overinvestment, and poor financial performance. Alternatively, overconfident managers might have more power in weakly governed firms, which results in value-destroying choices. The research also examines industry-specific and institutional differences, taking into account the ways in which divergent regulatory contexts and market situations influence these interactions. Early results indicate that even though good governance structures can mitigate the negative consequences of overconfident managers to some extent, their power relies on the level of board independence, incentive alignment, and external monitoring. The paper enriches corporate governance research by merging behavioral finance insights, providing a more subtle picture of how psychological biases interact with the organizational architecture. Practical implications are suggestions for governance reforms, increased director training, and compensation policies that deter overconfident behavior while encouraging long-term value creation.

Keywords: Corporate governance, firm performance, managerial overconfidence.

| DOI: 10.17148/IARJSET.2025.12557