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Degree

PhD, University of Cincinnati, Business Administration : Finance, 2006.

Abstract

While many studies have revealed that experimental subjects and individual investors display behaviors associated with overconfidence, fewer authors have investigated whether corporate executives fall prey to these same tendencies. This dissertation examines the impact of nine overconfidence-linked individual characteristics on the financial decisions of CEOs from domestic exchange-traded firms. Chapters 1, 2, and 3 focus on firms’ capital investment, acquisition, and disposition activities, respectively. Overall, the overconfidence-linked variables do not consistently and significantly affect the aforementioned financial decisions. There are, however, a few exceptions. First, CEOs’ press portrayal and ownership stakes correlate with their firms’ relative investment rates and investment-free cash flow sensitivities. Second, CEOs who face potential competition from a larger number of operating segment vice presidents have higher acquisition and disposition likelihoods. Third, acquisitions’ announcement returns significantly increase (decrease) with CEOs’ stockholdings (tenure). While behavioral explanations exist for most of these relationships, so do agency justifications. Altogether, our lack of results contradict the findings of Malmendier and Tate (2005a,b) and could imply that firms are structured in such a way so as to control for managerial overconfidence.

Subject Headings

Business Administration, General

Keywords

Overconfidence; Corporate Finance; Investment; Mergers and Acquisitions; Behavioral Finance; CEOs; Disposition Effect; Escalation of Commitment; Loss Aversion; Overinvestment

Advisor

Dr. Steve B. Wyatt

Pages

113p.

Document number: ucin1148229672
Permalink: http://rave.ohiolink.edu/etdc/view?acc_num=ucin1148229672

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