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Overconfidence and Early-life Experiences: The Impact of Managerial Traits on Corporate Financial Policies
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This article found that managers who believe that their firm is undervalued view external financing as overpriced, especially equity, and use less external finance and, conditional on accessing risky capital, issue less equity than their peers.Abstract:
We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions beyond traditional capital-structure determinants First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity Such overconfident managers use less external finance and, conditional on accessing risky capital, issue less equity than their peers Second, CEOs with Depression experience are averse to debt and lean excessively on internal finance Third, CEOs with military experience pursue more aggressive policies, including heightened leverage Complementary measures of CEO traits based on press portrayals confirm the resultsread more
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Time Encoding in Languages and Investment Efficiency
TL;DR: It is found that underinvestment is less prevalent in countries where there is a weaker time disassociation in the language and the results suggest that time encoding in languages influences speakers’ cognition and their investment decisions.
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Methodological Variation in Empirical Corporate Finance
TL;DR: In this paper, the authors document large variation in empirical methodology in corporate finance regressions in top finance journals and discuss remedies that can mitigate the negative effects of methodological variation, including dependent variable selection, variable transformation, and outlier treatment.
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Managerial risk appetite and asymmetry cost behavior: evidence from China
TL;DR: In this paper, the authors investigate whether a firm's cost behaviour is influenced by managers' risk appetite and find that cost stickiness increases with managers's risk-seeking, while the positive relationship between risk seeking and cost stickinginess is weaker for firms with higher levels of manager capacity.
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Governance, Board Inattention, and the Appointment of Overconfident CEOs
TL;DR: The authors showed that firms with overconfident executives tend to hire internally and when firms hire internally, they are more likely to pick a more confident candidate, suggesting that such boards might confuse luck-with-skill following the confident executives' tendencies towards greater risk-taking.
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Do Disruptive Life Events Affect How Analysts Assess Risk? Evidence from Deadly Hurricanes
Thomas Bourveau,Kelvin Law +1 more
TL;DR: In this article, the authors examined whether disruptive life events affect how analysts assess risk and found that analysts in states affected by hurricanes issue less optimistic forecasts for non-affected firms after hurricanes.
References
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Journal Article
The Cost of Capital, Corporation Finance and the Theory of Investment
TL;DR: In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.
Posted Content
What Do We Know About Capital Structure? Some Evidence from International Data
Raghuram G. Rajan,Raghuram G. Rajan,Raghuram G. Rajan,Luigi Zingales,Luigi Zingales,Luigi Zingales +5 more
TL;DR: In this paper, the authors investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries and find that factors identified by previous studies as important in determining the cross-section of the capital structure in the U.S. affect firm leverage in other countries as well.
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Unrealistic optimism about future life events
TL;DR: In this article, the authors investigated the tendency of people to be unrealistically optimistic about future life events and found that degree of desirability, perceived probability, personal experience, perceived controllability, and stereotype saliency would influence the amount of optimistic bias evoked by different events.
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The Hubris Hypothesis of Corporate Takeovers
TL;DR: The hubris hypothesis is advanced as an explanation of corporate takeovers by Jensen and Ruback as mentioned in this paper, who argued that the evidence supports the hubris hypotheses as much as it supports other explanations such as taxes, synergy, and inefficient target management.
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Debt and taxes
TL;DR: Miller et al. as discussed by the authors presented a paper on the thirty-fiveth annual meeting of the American Finance Association, Atlantic City, New Jersey, September 16-18, 1976 (May, 1977), pp. 261-275.