Overconfidence and Early-Life Experiences: The Effect of Managerial Traits on Corporate Financial Policies
84 Pages Posted: 27 Jan 2011
Date Written: January 27, 2011
Abstract
We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions. 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 external capital, issue less equity than their peers. Second, CEOs who grew up during the Great Depression 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 results.
Keywords: Managerial biases, managerial traits, overconfidence, Depression experience, military experience, capital structure, behavioral corporate finance
JEL Classification: D03, G31, G32
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction
-
On the Evolution of Overconfidence and Entrepreneurs
By Antonio E. Bernardo and Ivo Welch
-
Market Timing and Managerial Portfolio Decisions
By Dirk Jenter
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...
-
Behavioral Corporate Finance: A Survey
By Malcolm P. Baker, Richard S. Ruback, ...