Managerial overconfidence and corporate policies
Itzhak Ben-David; John R. Graham; Campbell R. Harvey
"Miscalibration is a standard measure of overconfidence in both psychology and economics. Although it is often used in lab experiments, there is scarcity of evidence about its effects in practice. We test whether top corporate executives are miscalibrated, and whether their miscalibration impacts investment behavior. Over six years, we collect a unique panel of nearly 7,000 observations of probability distributions provided by top financial executives regarding the stock market. Financial executives are miscalibrated: realized market returns are within the executives' 80% confidence intervals only 38% of the time. We show that companies with overconfident CFOs use lower discount rates to value cash flows, and that they invest more, use more debt, are less likely to pay dividends, are more likely to repurchase shares, and they use proportionally more long-term, as opposed to short-term, debt. The pervasive effect of this miscalibration suggests that the effect of overconfidence should be explicitly modeled when analyzing corporate decision-making"--National Bureau of Economic Research web site
Year of publication: |
2007
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Authors: | Ben-David, Itzhak ; Graham, John R. ; Harvey, Campbell R. |
Publisher: |
Cambridge, Mass. : National Bureau of Economic Research |
Subject: | Führungskräfte | Managers | Betriebliche Finanzwirtschaft | Managerial finance | Persönlichkeitspsychologie | Personality psychology | Verhaltensökonomik | Behavioral economics | Betriebswirtschaftliches Ziel | Corporate objective | Unternehmenserfolg | Firm performance | Gewinn | Profit | USA | United States | 2001-2007 |
Saved in:
freely available
Extent: | 55 S. graph. Darst. |
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Series: | Working paper / National Bureau of Economic Research, Inc.. - Cambridge, Mass. : National Bureau of Economic Research, Inc., ISSN 0898-2937, ZDB-ID 1223905-7. - Vol. 13711 |
Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature |
Language: | English |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10003627150