Download or read book Essays on CEO Overconfidence written by Neslihan Yilmaz and published by . This book was released on 2009 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on CEO Behavior written by Jackson Mills and published by . This book was released on 2015 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is composed of two essays that examine the feedback between firm financial characteristics and CEO behavioral tendencies. The first essay examines the relationship between CEOs' facial width-to-height ratios (fWHR) and firms' financial policies. Greater facial width is considered to be a masculine physical trait and has been linked to increased aggressive behavior and greater risk tolerance. I find that high-fWHR CEOs pursue more aggressive financial policies, including increased leverage and reduced cash holdings. Additionally, I find that high-fWHR CEOs tend to maintain smaller ownership shares of their firms, suggesting that these CEOs place relatively lower importance on signaling alignment with shareholders. I also show that acquisition attempts led by high-fWHR CEOs are more likely to be unsuccessful. Despite that these managerial characteristics in high-fWHR CEOs are not offset by greater profitability, I find that high-fWHR CEOs do not face a greater risk of forced turnover. In the second essay, I examine CEOs' option-exercise decisions. The retention of deep in-the-money stock options has been ascribed to managers' overconfidence in their ability to increase firm value. I find that this behavior is predicted by non-private firm financial information and macroeconomic conditions. Specifically, managers are more likely to retain deep in-the-money stock options when their firms are more profitable, less financially constrained, and have greater growth opportunities. This behavior is also more frequently exhibited during periods of macroeconomic expansion. Given its apparent reactionary nature, this behavior seems to be a reflection of managers' optimism regarding the near-term financial prospects of their firms and is not necessarily attributable to managerial overconfidence.

Download or read book Essays in Behavioral Corporate Finance written by Hui Zheng and published by . This book was released on 2012 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the extent to which managerial overconfidence affects corporate decisions. This analysis includes three essays, which address a wide range of corporate decisions including financing, investment, acquisition, innovation, liquidity management and advertising decisions. The first essay introduces a fine-tuned test of the relationship between managerial overconfidence and corporate decisions by taking the chief financial officer (CFO) overconfidence effect into account. Ex-ante, I identify financial policies and non-financial policies such as investment, innovation and acquisition as the primary managerial duties of CFOs and chief executive officers (CEOs) respectively. I construct overconfidence measures for both CEOs and CFOs and test the impact of CEO and CFO overconfidence, both on financial decisions and on nonfinancial decisions. Based on a sample of 1,173 S & P 1500 firms, I find that financial policies are primarily affected by CFO overconfidence while only CEO overconfidence affects nonfinancial decisions. My findings demonstrate that managerial biases affect corporate decisions and managerial duties shape the ways in which top managers influence corporate policies. The second essay investigates how overconfident CEOs allocate resources toward innovation activities. It argues that overconfident CEOs tend to have greater innovation input. To finance innovation, they save more cash out of the cash flow and spend more on innovation when the cash flow is high. Results from an empirical analysis of 1,015 S & P 1500 firms support this argument. Moreover, based on a series of financial constraint measurements, the effect of CEO overconfidence on liquidity management is found to be more pronounced in financially constrained firms and in highly innovative firms, but not in firms without financial constraints. With regards to innovation performance, overconfident CEOs tend to have more patents, but the overall quality of their patents is not significantly better than that of rational CEOs. The third essay introduces a simple model of firm advertising behavior in monopolistic competition industries and applies it to the situation of managerial overconfidence. The model shows that the optimal advertising to sales ratio is determined by both firm advertising competency and consumer preference. Overconfident CEOs are more willing to use advertising as a means to convey the quality of their firms and products. Such overestimation of the effects of advertising by overconfident CEOs will result in overspending on advertising. When financially constrained, an overconfident CEO's tendency to overspend will be curbed to some extent, but his amount of advertising will increase with cash flows. An empirical analysis of 654 S & P 1500 firms supports these predictions. The distorted effect of managerial overconfidence is more prominent when firms are financially constrained and when the overconfidence measure is continuous.

Download or read book Executive Compensation Empirical Essays on the Antecedents and the Consequences and the Role of Executive Personality written by Steffen Florian Burkert and published by BoD – Books on Demand. This book was released on 2023-03-10 with total page 233 pages. Available in PDF, EPUB and Kindle. Book excerpt: Top managers have a significant impact on organizations because they are responsible for the formulation and implementation of corporate strategies, have the visibility and influence to shape the opinions of internal and external stakeholders, and coin the culture of their organizations, affecting employees at every level of the organization. Research has focused on the drivers and consequences of top managers' actions, with a particular focus on executive compensation, but important questions remain unanswered. This dissertation contributes to the literature on top executives by examining the antecedents of executive compensation, the influence of executive compensation on executive behavior, and the interplay of executive compensation and top executive personality. The first study introduces the role of compensation benchmarking for determining executive compensation to the management literature. It finds that benchmarking leads to compensation convergence. The second study examines the impact of executive compensation complexity on firm performance. The results show that compensation complexity is negatively related to accounting-based, market-based, and ESG-based metric of firm performance. The third study explores the implications of relative performance evaluation (RPE) on the imitation behavior of firms. It finds that the introduction of RPE is positively related to the imitation of the strategic actions of peer firms. The fourth study contributes to the growing literature on the impact of corporate social performance (CSP) goals in CEO contracts. Specifically, it examines how and when CSP incentives influence the CEO's attention to corporate social responsibility topics. The final essay examines the role of CEO personality; it finds that differences in CEO personality explain differences in the level of strategic conformity. Taken together, the essays in this dissertation make a significant contribution to the scholarly discourse on the influence of top managers on their companies. The empirical evidence presented expands the current understanding of how top executives affect strategic firm behaviors, and it provides insights for policymakers, managers, and investors.

Download or read book CEO Overconfidence and Innovation written by Alberto Galasso and published by . This book was released on 2010 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are CEOs' attitudes and beliefs linked to their fims' innovative performance? This paper uses Malmendier and Tate's measure of overconfidence, based on CEO stock-option exercise, to study the relationship between a CEO's 'revealed beliefs' about future performance and standard measures of corporate innovation. We begin by developing a career concern model where CEOs innovate to provide evidence of their ability. The model predicts that overconfident CEOs, who underestimate the probability of failure, are more likely to pursue innovation, and that this effect is larger in more competitive industries. We test these predictions on a panel of large publicly traded firms for the years 1980 to 1994. We ?nd a robust positive association between overconfidence and citation-weighted patent counts in both cross-sectional and fixed-effect models. This effect is larger in more competitive industries. Our results suggest that overconfident CEOs are more likely to take their firms in a new technological direction -- National Bureau of Economic Research web site.

Download or read book Two Essays on Mergers and Acquisitions written by Dongnyoung Kim and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first essay, we examine the link between CEOs political ideology - conservatism - and their firms' investment decisions. We focus on the effect of CEO conservatism on M&A decisions. Our evidence indicates that politically conservative CEOs are less likely to engage in M&A activities. When they do undertake acquisitions, their firms are more likely to use cash as the method of payment, and the target firms are more likely to be public firms and to be from the same industry. Conditional on the merger, CEO conservatism appears to have a significantly positive impact on long-run firm valuation. However, we find no evidence that conservative CEOs create value in the short run. All our results hold after controlling for CEO overconfidence. In the second essay, we investigate the impact of difference in local political ideologies between acquirers and targets on the likelihood of deal completion and announcement returns over the period of 1981-2009. We posit that increase in political ideology distance between acquirer and target leads to greater risks/costs associated with the integration process. This increase in distance is less likely to allow for the completion of deals and elicit less favorable market response to merger announcements. We find that when political ideology distance between acquirer and target in a merger are minimal, deals are more likely to be completed. We also find that acquirer which are politically proximate to their targets earn significantly higher returns than distant acquirers. After controlling for the geographic effect and other determinants of announcement returns, the political ideology effect still exists. Overall, the evidence suggests that corporate political ideology plays an important role in completing deals and determining announcement returns.

Download or read book Essays on Corporate Governance written by Shuai Wang and published by . This book was released on 2017 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent literature provide widespread and robust evidence on the impact of corporate governance. Ownership structure and management characteristics are among the center of the debate. Empirical studies report conflicting evidence regarding the information environment of public family-controlled firms. We use staggered exogenous shocks to the information environment to test whether family control influences corporate disclosure. After an exogenous decrease in the information environment, we find that family firms provide greater, more informative, and more rapidly produced disclosures than their nonfamily peer firms. Family control increases the likelihood of voluntary disclosure by 190% relative to nonfamily firms after a negative information shock. These disclosure increases occur across founder-, descendant-, and externally- led family firms, suggesting families possess strong incentives to protect the firm's information environment. Beyond ownership structure, I examine the relation of CEO overconfidence on compensation incentive. My findings suggest that the cost-reduction hypothesis applies when firms offer higher incentive to overconfident CEOs to exploit their positively biased views of firm performance; risk-reduction hypothesis dominates when CEOs are extremely overconfident, where firms offer reduced compensation convexity to lower CEO's excessive risk-taking incentive. Extremely overconfident CEOs receive less convex compensation than moderately overconfident CEOs and this relation amplifies with history of value-destroying acquisition and better corporate governance.

Download or read book Overconfidence Review of its Economic Implications written by Stefan Dietrich and published by GRIN Verlag. This book was released on 2018-05-02 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2017 in the subject Psychology - Work, Business, Organisation, grade: 1,00, University of Mannheim, course: Behavioral Economics Seminar, language: English, abstract: Overconfidence is believed to be one of the most widespread behavioral biases. Empirical evidence supports this argument in many instances and differentiates between various forms and manifestations. Whether this is in sum economically negative for the individual or society remains unanswered in the literature. I analyze the economic implications of overconfidence based on recent research and connects them to reasons and viable solutions to overcome this bias in certain areas of the economic realm: consumer choices, market entry and decision making of firms, financial markets and bubbles.

Download or read book Essays in External Corporate Governance written by Abhishek Ganguly and published by . This book was released on 2020 with total page 183 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation comprises three essays that address several unanswered and unsettled questions on the role of institutional investors as external monitors. In the first chapter titled, "Media and Shareholder Activism," using more than twenty-five million firm-level media articles, I examine the role of media in shareholder activism events from 2002 to 2014. I find that conditioning on numerous observable firm-specific characteristics and unobservables, broader and negative ex-ante media coverage, is positively associated with the probability of a firm being a shareholder activist's target. I further document that media coverage also plays a crucial role in determining the outcomes of activism events. Target firms with ex-ante positive media coverage not only have significantly lower announcement returns but also have a higher likelihood of management winning. The second chapter titled, "CEO Overconfidence and Shareholder Activism," relies on extensive behavioral corporate finance theory and empirically explores whether managerial overconfidence is associated with hedge-fund activists' target selection and activism outcomes. Predictions from theoretical models point in different directions: activists mitigate overconfidence or activists avoid overconfident managers. We find evidence that hedge-fund activists are less likely to target firms with overconfident CEOs, after controlling for various firm and CEO characteristics and fixed effects. In the third chapter, "Hedge Fund Activism and Capital Structure," using a comprehensive sample of hedge-fund activism from 1994 to 2018 in the U.S., and closest propensity score-matched firms, we study whether hedge-fund activists influence the capital structures of targeted firms. We find that for over-levered firms, there is a significant positive association between firms' distance away from the target leverage and their likelihood of being targeted by an activist hedge-fund. However, rebalancing of leverage toward their target debt ratios post-hedge fund activist intervention is observed only among under-levered firms. Our findings are broadly consistent with the dynamic trade-off models of capital structure, where adjustment costs and agency benefits of leverage play a crucial role.

Download or read book CEO Overconfidence and the Probability of Bankruptcy written by Ruhul Amin and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis examines the relation between CEO overconfidence and the probability of bankruptcy. In addition to the main research question, we develop two additional hypotheses. We evaluate the potential link or channel between CEO overconfidence and the probability of bankruptcy. In the relationship between CEO overconfidence and the probability of bankruptcy, we seek for any interaction effects of CEO dominance. It is not uncommon for CEOs to be overconfident about their firms' prospects. In our sample, we use data from the year 2000 to 2019 for US companies. We proxy the bankruptcy probability using Altman's Z Score. We use a stock option-driven measure of overconfidence, and this measure assumes that non-overconfident CEO will exercise their stock options if it is in the money, while overconfident CEOs will hold stock options beyond a rational threshold. We construct both continuous and indicator-based measures of overconfidence to test the hypotheses. The empirical findings reveal that CEO overconfidence increases the probability of bankruptcy. We do not find any evidence in favor of overinvestment which we consider as a channel through which overconfidence leads to increased bankruptcy risk. We also find that dominant and overconfident CEOs are suited for innovative firms, implying that giving an overconfident CEO a dominant position can minimize a firm's probability of bankruptcy. The implications of this study are that firms should be cautious in hiring overconfident CEO and they should take measures to reduce the negative effects of CEO overconfidence like the probability of bankruptcy. One way to reduce the probability of bankruptcy in innovative firms is to appoint overconfident CEO into a dominant position.

Download or read book What Is CEO Overconfidence Evidence from Executive Assessments written by Steven N. Kaplan and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs' earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

Download or read book CEO Overconfidence and Corporate Investment written by Ulrike Malmendier and published by . This book was released on 2004 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds as unduly costly. Thus, they overinvest when they have abundant internal funds, but curtail investment when they require external financing. We test the overconfidence hypothesis, using panel data on personal portfolio and corporate investment decisions of Forbes 500 CEOs. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk. We find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms.

Download or read book Essays on Managerial Behaviour Corporate Governance and Information Risk written by Samir Saadi and published by . This book was released on 2012 with total page 270 pages. Available in PDF, EPUB and Kindle. Book excerpt: This three-essay dissertation first examines the impact of tax enforcement on the incidence of stock option backdating. Consistent with the theoretical prediction that tax authority enforcement can operate as a valuable monitoring tool by narrowing the scope for managerial entrenchment, we find robust evidence that the incidence of stock option backdating is lower when firms are more likely to be subject to IRS audits. Our results reinforce calls in the public policy discourse for institutions that protect investors by curtailing companies' "degrees of freedom" to engage in corporate misbehaviour. The second essay examines how the market reacts to announcements of mergers and acquisitions (M & As) by well performing acquirers and evaluates the results in light of three hypotheses: 1) managerial ability, 2) empire building, and 3) chief executive officer (CEO) overconfidence. Our results indicate that an empire building motive drives the relationship between past superior operating performance and M & A announcements. Long-term operating performance drops significantly for acquiring firms with past superior operating performance. Our evidence also indicates that the presence of insider directors helps to alleviate the negative perception of acquisitions made by firms with better operating performance or empire building CEOs. The final essay investigates the controversial issue of whether information asymmetry affects the cost of equity capital. We re-examine this unanswered question using a unique and simple measure of information risk rooted in the growing literature on geographic proximity. Relying on their distance from financial centers to gauge when firms are better known, we provide robust evidence that information risk shapes equity pricing. In particular, we find that firms located in remote areas exhibit a higher cost of equity capital.

Download or read book Three Essays on CEO Risk Preferences and Ability Corporate Hedging Decision and Firm Value written by Sonik Mandal and published by . This book was released on 2018 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Corporate Investment and Managerial Attribution written by Wahib Ghazni and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation empirically investigates the role of managerial traits, skill, and biases on corporate investment decisions. The first essay causally explores the impact of Diversity Inclusion and Equity (DEI) in the ranks of executive leadership on corporate intangible capital. Using a machine learning algorithm that is trained on the U.S Census to build a novel database that identifies the ethnicity of all C-Suite Executives. It explores the differentiating dimensions of leadership traits that are brought to the managerial decision-making process by DEI. The findings reveal that minority executives pioneer in building a firm's intangible capital by increasing its innovation output and growing its organizational capital. The second essay shows that the sharp decline in option compensation following SFAS 123R in 2005 has diminished the effectiveness of previous option-based managerial overconfidence measures. Thus, it proposes a new measure of managerial overconfidence: dollars at risk from voluntarily holding vested shares and options. It tests 16 predictions from the literature regarding overconfidence and finds strong evidence validating the proposed measure. The third and last essay lends empirical support to the premise that boards consider dynamic CEO performance to make their estimates about true CEO skill. It expands the focus of the relative performance evaluation from studying the relationship of CEO pay and turnover with contemporaneous skill performance to including persistent skill. Its findings show that boards do consider dynamic skill performance in their assessment of managerial skill and that persistent skill is associated with higher pay and a lower probability of turnover.

Download or read book CEO Overconfidence and Corporate Tournaments written by Ivana Vitanova and published by . This book was released on 2018 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does CEO overconfidence help explain pay inequalities in top management teams? Tournament literature argues that pay gaps between different executive echelons increase competition among executives in the goal to replace the incumbent CEO and by so doing incentivize all top management team members to provide more effort. The increase in incentives can in turn lead to firm-level performance improvement especially in corporations where agency conflicts are severe. However, entrenchment seeking CEOs can be reluctant to this kind of incentivizing mechanisms. In this paper, we model such a context and show how overconfident CEOs are more likely to administer tournament like incentives than realistic CEOs. Hence, we describe a novel and under-explored way in which CEO overconfidence can be beneficial to shareholders.

Download or read book Making the Same Mistake All Over Again written by Guoli Chen and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Firms often make mistakes, from simple manufacturing overruns all the way to catastrophic blunders. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future. In this paper, we explore an important but understudied influence on firms' responses to corrective feedback - a CEO's level of overconfidence. Using multiple distinct measures of overconfidence and the empirical context of voluntary corporate earnings forecasts, we find strong, robust evidence that firms led by overconfident CEOs are less responsive to corrective feedback in improving management forecast accuracy. We further show that this relationship is moderated by prior forecast error valence, time horizon, and managerial discretion.