This study examines the impact of terrorist attacks on investment, firm value, and corporate productivity. We show that terrorist attacks reduce firm-level productivity using measures of terrorist attack proximity in the U.S. However, since overconfident CEOs overestimate the returns on their investment, the underinvestment problem caused by the terrorist attacks can be mitigated for firms with overconfident CEOs. We find that firms with non-overconfident CEOs that are located nearby terrorist attacks significantly decrease their investment, relative to firms with overconfident CEOs and firms that are located far from attacks. Consequently, the impact of terrorist attacks on firm value varies between firms with overconfident and non-overconfident CEOs. Overall, this study suggests that CEO overconfidence can be beneficial for shareholders wealth under the certain condition such as terrorist attacks.

Keywords: Terrorist attacks; Productivity; Investment; CEO overconfidence; Firm value

JEL Classification: G31, G41, D91, H56