Rankings are omnipresent in the finance industry, yet the literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab ...experiments with 432 students, we investigate how rank incentives affect investment decisions. We find that both rank and tournament incentives increase risk-taking among underperforming professionals, while only tournament incentives affect students. This rank effect is robust to the experimental frame (investment frame vs. abstract frame), to payoff consequences (own return vs. family return), to social identity priming (private identity vs. professional identity), and to professionals' gender (no gender differences among professionals).
Management scholars have identified a variety of firm characteristics as antecedents to organizational learning. In this study, we conceptualize intraorganizational multiplicity of mental models as a ...complementary element that facilitates shifting from lower- to higher-level learning. Specifically, we investigate whether multiplicity of mental models—proxied by four measures—helps acquirers to categorically adapt selection rules for legal advisors in mergers and acquisitions (M&As) from domestic toward international settings. In developing our conceptual framework, we integrate resource-based, social network, and organizational learning perspectives. Empirically, we draw on 11,511 acquisition attempts announced from 1998 to 2010 (completion/abandonment assessed as of January 10, 2015, at the latest). The results largely support our theory: First, choosing legal advisors in domestic and international deals calls for different selection rules. While in domestic deals, network-related characteristics are more important drivers of lawyers’ performance relative to their country-specific expertise, the comparative relevance of these attributes is reversed in cross-border deals. Yet, initially, acquirers fail to recognize this. Also, they do not initially adjust their selection criteria appropriately in response to accumulating M&A experience of their own. Only after having attempted a substantial number of cross-border M&As, they reach a turning point at which they rebalance their selection criteria such that they reflect the predominant relevance of country expertise in cross-border settings. Finally, recognition of the need to categorically reassess selection criteria in international deals is significantly facilitated by an acquirer’s multiplicity of mental models.
Bubbles and Financial Professionals Weitzel, Utz; Huber, Christoph; Huber, Jürgen ...
The Review of financial studies,
06/2020, Letnik:
33, Številka:
6
Journal Article
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The efficiency of financial markets and their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution of financial ...professionals to price efficiency. We run 116 experimental markets with 412 professionals and 502 students. We find that professional markets with bubble drivers–capital inflows or high initial capital supply–are susceptible to bubbles, although they are more efficient than student markets. In mixed markets with students, bubbles also occur, but professionals act as price stabilizers. We show that heterogeneous price beliefs drive overpricing, especially in bubble-prone market environments.
Studies on decision-making under uncertainty have mainly focused on understanding preferences for either risk or ambiguity using standard lottery designs. However, people often face uncertainty that ...directly stems from interacting with other people, which may be processed differently from lottery-based uncertainty. Here, we substantially extend the investigation of uncertainty by examining a fourfold pattern of the sources and the types of uncertainty, assessing behavioral and neural responses to both risk and ambiguity across both social and non-social contexts. A key element in our research design was to control for participants’ naturally occurring social beliefs, and taking these a priori beliefs into account allow us to elicit individual preferences in accordance with economic approaches that stress the dynamics of ambiguity preference as a function of underlying likelihoods. Using this design, we find a behavioral main effect of ambiguity aversion, with increasing ambiguity aversion as a function of higher beliefs regarding the likelihood of reciprocity, and related neural activity in the right IPS. This brain region was primarily involved when participants experienced lottery-based uncertainty as opposed to social uncertainty. However, we found that the right IFG was more involved when participants made decisions under social, as compared to non-social, uncertainty. Overall, therefore, the IPS may activate an analytic mindset, which might resonate more with a lottery than a social context, whereas the IFG is engaged when the context requires players to resolve uncertainty, such as unraveling the intentions behind the choice of another person.
We use a panel of 4979 cross-border and domestic takeovers to test the relation between host country corruption and premiums paid for local targets. Host country corruption is negatively associated ...with target premiums, after correcting for other governance-related factors such as political stability, legal systems, and financial disclosure standards. We estimate that deterioration in the corruption index by one point (on a 10-point scale) is, on average, associated with a reduction of 21% of local targets' premiums. Our results do not support the notion that local corruption constitutes a significant market barrier to foreign investors; rather, it represents a discount on local takeover synergies, which affects foreign and domestic acquirers alike. However, we find that the major effects of corruption can alternatively be explained by government effectiveness, pointing towards an endogenous relationship between bribery and bureaucracy.
Individual-level opportunity recognition processes are vital to corporate entrepreneurship. However, little is known regarding how managerial communication impacts the effectiveness of idea ...suggestion systems in stimulating individuals' participation in intrapreneurial ideation. Integrating self-determination theory, creativity, and framing research, we theorize how different ways of inviting employees to submit proposals (opt-out/opt-in registration; provision of examples) affect the number and quality of submitted ideas. Our multi-method study (field experiment, vignette experiment, interviews) shows that (i) opt-out increases employee participation without reducing idea quality and (ii) the provision of examples enhances the usefulness of ideas but decreases novelty and the number of submissions.
•Focuses on the role of the individual in corporate entrepreneurship•Explores how managerial framing affects intrapreneurship and idea development.•Trade-offs between intrapreneurial ideas, their novelty and usefulness are explored.•Uses a multi-method experimental approach to explore the effect of framing.
Risk-assessment and risk-taking in various forms are among the most important tasks financial professionals face in their daily work. A large body of experimental studies has shown a substantial ...effect of the decision domain (gain vs loss domain) on risk-taking, predominantly among students. In a series of experiments set in different contextual frameworks, we investigate whether this domain effect is also present among experienced employees in the finance industry and compare their decisions with people from the general population. Our results show that employees in the finance industry are equally prone to the domain effect in risk-taking than the general population. Interestingly, for domain-specific risk-taking in a finance context, we find that professionals are even more reluctant to sell loser stocks than non-professionals.
Experiments in finance Kirchler, Michael; Weitzel, Utz
Journal of banking & finance,
September 2023, 2023-09-00, Letnik:
154
Journal Article
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Although almost nonexistent until the 1980s, experiments in Finance have gained ever growing popularity in recent years. In 2021, the Journal of Banking and Finance launched a Special Issue ...“Experiments in Finance”. We introduce the field Experimental Finance and review the selected papers of the Special Issue. We conclude with implications and an outlook for experiments in finance (and experiments in general), particularly focusing on approaches for scientific robustness, open science, and meta-science.
Bidding above the risk‐neutral Nash equilibrium in first price sealed bid auctions has traditionally been ascribed to risk aversion. Later studies, however, offer other explanations and even argue ...that risk aversion plays no or a minor role. In a novel experimental design, we directly test the relationship between risk aversion and overbidding by systematically varying the distribution of risk attitudes in auction markets. We find a significant relationship between our measure of risk aversion and overbidding. (JEL D44, C91)
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