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Author: Desiree-Jessica Pely
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Desiree-Jessica Pely
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Hui Zheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 186
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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.
Author: Bradley J. Cannon
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 311
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This dissertation consists of three chapters that study how psychology impacts stock prices and how stock prices then impact corporate decisions. In the first chapter, I study whether a firm’s investment responds to the stock valuations of other firms headquartered nearby. I document a positive relation between a firm’s investment and the valuation of neighboring firms. This relation is stronger among financially constrained firms and is robust to controlling for the actual investment of other firms in the region. These findings are difficult to reconcile with traditional theories that link investment opportunities to firm valuations, but instead suggest that the ability of firms to raise external finance rises and falls with the stock valuations of other firms located nearby. Consistent with this explanation, I document that financially constrained firms issue more debt and receive more trade credit when neighboring firms have high stock valuations. In the second chapter, I test models of return extrapolation in the cross-section of stock returns. Return extrapolation is a biased belief structure that has received considerable attention because of its ability to generate prominent empirical findings in the asset pricing literature, while also being able to match investor beliefs. I document that return extrapolation is not uniform across firms but is instead more prevalent among firms that do not pay dividends (capital-gain firms). Specifically, analyst return expectations are positively related to past annual returns for capital-gain firms but show no relation among dividend-paying firms. I exploit this difference in extrapolative expectations to test asset pricing predictions stemming from models of return extrapolation. Consistent with return extrapolation models, I show that the value premium and long-term reversal are stronger among capital-gain firms. Momentum, however, is stronger among dividend-paying firms and, consequently, does not appear to be a result of return extrapolation. In the third chapter, co-authored with Hannes Mohrschladt, we test whether reference prices impact how investors respond to news. When current prices are farther from a reference price, investors react more strongly to news. We first document that individual investors are more (less) likely to sell a stock following bad (good) news when the stock's trading price is farther from the investor's purchase price. Motivated by this micro-level evidence, we construct a stock-level measure to capture the distance between a stock's trading price and its purchase price for the average investor. We provide evidence that this distance from purchase price produces a substantial amount of cross-sectional variation in the degree to which stocks over- or underreact to news. Stocks trading farthest from their purchase price react more strongly to news than stocks trading near their purchase price. Consistent with relative overreaction, stocks trading farthest from their purchase price also exhibit greater return reversal following news days. We document that a cross-sectional strategy exploiting these return patterns earns a monthly alpha of 0.93%. These findings are distinct from alternative explanations related to size, illiquidity, and volatility. Our evidence instead suggests that reference prices have a meaningful impact on how investors respond to news.
Author: Júlio Lobão
Publisher: Cambridge Scholars Publishing
ISBN: 1443887412
Category : Business & Economics
Languages : en
Pages : 207
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Orthodox financial theory often ignores the role played by managers’ personal characteristics in their decision-making processes. However, as anyone with experience in the business world knows, managers’ personalities are crucial in the choices they make. Indeed, it should be noted that firms do not make decisions, rather it is the managers who decide – either as a group or individually. This book explores the impact of managers’ psychological profiles and life experiences on their financial decisions, taking the following key questions as starting points: Why do they commit mistakes? Why do they contract debt and issue shares? How do they choose the right amount of dividends to distribute? Why do they acquire other firms? Why do they sometimes choose to manipulate information and to commit fraud? As the book highlights, having insights into managers’ psychology is essential to understanding their choices and predicting decisions made by competing firms.
Author: Andrij Bodnaruk
Publisher:
ISBN:
Category : Going public (Securities)
Languages : en
Pages : 166
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Author: A. Szyszka
Publisher: Springer
ISBN: 113736629X
Category : Business & Economics
Languages : en
Pages : 336
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Behavioral Finance helps investors understand unusual asset prices and empirical observations originating out of capital markets. At its core, this field of study aids investors in navigating complex psychological trappings in market behavior and making smarter investment decisions. Behavioral Finance and Capital Markets reveals the main foundations underpinning neoclassical capital market and asset pricing theory, as filtered through the lens of behavioral finance. Szyszka presents and classifies many of the dynamic arguments being made in the current literature on the topic through the use of a new, ground-breaking methodology termed: the General Behavioral Asset Pricing Model (GBM). GBM describes how asset prices are influenced by various behavioral heuristics and how these prices deviate from fundamental values due to irrational behavior on the part of investors. The connection between psychological factors responsible for irrational behavior and market pricing anomalies is featured extensively throughout the text. Alternative explanations for various theoretical and empirical market puzzles - such as the 2008 U.S. financial crisis - are also discussed in a convincing and interesting manner. The book also provides interesting insights into behavioral aspects of corporate finance.
Author: Wei Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 150
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This dissertation has two chapters. Each empirically examines one finance topic. The first chapter focuses on behavioral finance. The second chapter focuses on corporate finance. The first chapter is motivated by inconclusive theoretical prediction and lack of empirical evidence on the effect of mood on trading volume. This chapter exploits repeated natural experiments from the occurrence of severe smog in Beijing to test the inertia hypothesis (Bad moods cause inactivity and inertia and thus decrease in trading volume) against the mood regulation hypothesis (Bad moods increase trading volume because investors use trading as a way to combat bad moods). Intra-day analysis in this chapter shows that smog in Beijing causes trading volume of stocks headquartered in Beijing to increase, which contradicts the inertia hypothesis. The effect is more pronounced among large stocks, which rules out the possibility that investors seek gambling thrill during smog. Additionally, the effect is more pronounced among low risk stocks, which reflects the risk aversion associated with depression among investors and supports the mood regulation theory. The second chapter is motivated by the fact that initial public offerings (IPOs) transform private firms into publicly traded ones, thereby improving liquidity of their shares. Better liquidity increases firm value, which I call "liquidity value". I develop a model and hypothesize that issuers and IPO investors bargain over the liquidity value, resulting in a discounted offer price, i.e., IPO underpricing. Consistent with the model, I find that underpricing is positively related to the expected post-IPO liquidity of the issuer. The relation is stronger when firms are financed by venture capital investors, when the underwriter has more bargaining power, or when a smaller fraction of the firm is sold. I also explore two regulation changes as exogenous shocks to issuers' liquidity before and after IPO, respectively. With a difference-in-difference approach, I find that underpricing is more pronounced with better expected post-IPO liquidity or lower pre-IPO liquidity.
Author: Sven Michael Spira
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This dissertation consists of four distinct chapters.The first chapter presents the joint work with Christophe Spaenjers.We find that individuals with longer subjective life horizons hold higher conditional equity shares, and the effect of a shortening life horizon on portolio choice is offset by bequest motives. In the second chapter,I examine the explanatory power of birth order to financial household decisions. I show that firstborns differ in their financial decision-making from later born siblings. The results highlight the importance of personal family experiences for household choices. In the third chapter,I document that, in surveys, the presence of companions decreases the probability of respondents replying, and increases the probability of respondents overreporting their self-assessed abilities. The overreporting leads to a downward bias in the estimates of the importance of overconfidence for individuals' behavior. The fourth chapter presents joint work with Thomas Bourveau and François Brochet. We identify M&A lawsuits, where plaintiffs allege that the firm hid poor performance related to prior acquisition. Using the filing of a lawsuit as an industry shock, we show findings consistent with a disciplining effect from the lawsuit for the investment behavior of peer firms' managers.
Author: Anja Kunzmann
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Tomas Hernan Reyes Torres
Publisher:
ISBN:
Category :
Languages : en
Pages : 85
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Book Description
This dissertation examines the factors that influence investors' attention to the stock market and the relationship that exists among attention and real output variables including stock returns, trading volume, and volatility. Traditional asset pricing models assume that information is effortlessly obtained and instantaneously incorporated into pricing. This assumption requires that investors devote sufficient attention to the asset, and ignores the existence of various channels through which public information is disseminated. In reality, attention is a scarce cognitive resource which is related to the effort that investors must expend to obtain information; the implications of this contingency of attention on these limitations have been remarkably under-researched in the past. In the first chapter of this study, I familiarize readers with Google Trends data and explain why such data is a better source to proxy for attention than the measures previously used in the literature. Next, utilizing this data, I describe how to measure investors' attention with regard to M\&A announcements, and show that attention is not instantaneous with the release of information, but is, instead, spread over a period surrounding the announcement. Retail investors pay attention and demand information about a firm as the announcement date approaches, during the announcement, and for days afterward. Finally, I present three aggregate measures of attention in the stock market, which are also based on search volume from Google. After constructing these measures, I study how they correlate with, but differ from, existing proxies of attention. In the second chapter, I consider whether limited attention explains the announcement effect bias found in the M\&A literature concerning merger and acquisition announcements. More specifically, I ask: How does variation in investors' attention affect the capital market response to M\&A announcements? To answer this question I rely on the measure for attention to M\&A announcements described in the previous chapter and find that high abnormal attention on the day of announcement predicts high adjusted abnormal returns the day after. This effect is strongest among firms with high standard deviations and betas, and it partially reverses over the following months. The third chapter argues that negative stock market performance attracts more attention from retail investors than comparable positive performance. Specifically, I rely on the three aggregate measures of attention in the stock market to test and confirm the hypothesis that retail investors pay more attention to negative rather than positive extreme returns. Empirical results strongly support that with respect to stock returns investors display this negativity bias in attention allocation. Across all specifications, lagged negative extreme returns are stronger predictors than positive extreme returns of high attention at the stock and market level. I rule out that negative returns are stronger simply because they are more unusual or because negative and positive returns are not symmetrical events to stockholders.
