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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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CEO fitness and firm value
Peter Limbach,Florian Sonnenburg +1 more
TL;DR: In this paper, the authors found a positive relation between CEO fitness and firm value, and they defined CEOs of S&P 1500 companies as being fit if they finish a marathon.
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Learning in Entrepreneurship
TL;DR: This article used data from nearly 100 new venture competitions to show that negative feedback causally increases the chances a venture is abandoned and that learning in the sense of improvement is predictive of subsequent financing and employment.
Essays in Knowledge Transfer
TL;DR: In this paper, the authors propose a theoretical model that shows that markets stimulate sharing of information from all producers, and that markets are a better organizational structure when the manager believes that key information is spread among competitors.
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Information Asymmetry, Mispricing, and Security Issuance
TL;DR: This paper examined the effects of information asymmetry-driven mispricing on security issuance and found that managers avoid issuing securities when they perceive their firms to be undervalued (overvalued).
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Optimism or Over-Precision? What Drives the Role of Overconfidence in Managerial Decisions?
TL;DR: This paper developed accessible empirical measures to disentangle over-optimism and over-precision through a novel exploitation of earnings forecasts issued by firm managers, and the resulting measures capture different aspects of the link between overconfidence and managerial decisions.
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.
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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.