MANAGERIAL MISCALIBRATION Ben-David, Itzhak; Graham, John R.; Harvey, Campbell R.
The Quarterly journal of economics,
11/2013, Letnik:
128, Številka:
4
Journal Article
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Using a unique 10-year panel that includes more than 13,300 expected stock market return probability distributions, we find that executives are severely miscalibrated, producing distributions that ...are too narrow: realized market returns are within the executives’ 80% confidence intervals only 36% of the time. We show that executives reduce the lower bound of the forecast confidence interval during times of high market uncertainty; however, ex post miscalibration is worst during periods of high uncertainty. We also find that executives who are miscalibrated about the stock market show similar miscalibration regarding their own firms’ prospects. Finally, firms with miscalibrated executives seem to follow more aggressive corporate policies: investing more and using more debt financing.
Corporate culture: Evidence from the field Graham, John R.; Grennan, Jillian; Harvey, Campbell R. ...
Journal of financial economics,
November 2022, 2022-11-00, Letnik:
146, Številka:
2
Journal Article
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Ninety-two percent of the 1348 North American executives we survey believe that improving corporate culture would increase firm value. A striking 84% believe their company needs to improve its ...culture. But how can that be achieved? Our paper provides some guidance by documenting the following: executives’ views on what corporate culture is and how it operates, distinguishing between stated values and everyday norms; the extent to which culture is perceived to influence value creation (productivity, mergers), ethical choices (compliance, short-termism), and innovation (creativity, risk-taking); and a list of obstacles that can prevent culture from being where it should be (inattentive leaders, misaligned incentive compensation). Finally, we provide evidence that the executives’ survey responses are consistent with external data.
Managerial attitudes and corporate actions Graham, John R.; Harvey, Campbell R.; Puri, Manju
Journal of financial economics,
07/2013, Letnik:
109, Številka:
1
Journal Article
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We administer psychometric tests to senior executives to obtain evidence on their underlying psychological traits and attitudes. We find US CEOs differ significantly from non-US CEOs in terms of ...their underlying attitudes. In addition, we find that CEOs are significantly more optimistic and risk-tolerant than the lay population. We provide evidence that CEOs' behavioral traits such as optimism and managerial risk-aversion are related to corporate financial policies. Further, we provide new empirical evidence that CEO traits such as risk-aversion and time preference are related to their compensation.
Small Island Developing States are often depicted as being among the most vulnerable of all places to the effects of climate change, and they are a cause celebre of many involved in climate science, ...politics and the media. Yet while small island developing states are much talked about, the production of both scientific knowledge and policies to protect the rights of these nations and their people has been remarkably slow. This book is the first to apply a critical approach to climate change science and policy processes in the South Pacific region. It shows how groups within politically and scientifically powerful countries appropriate the issue of island vulnerability in ways that do not do justice to the lives of island people. It argues that the ways in which islands and their inhabitants are represented in climate science and politics seldom leads to meaningful responses to assist them to adapt to climate change. Throughout, the authors focus on the hitherto largely ignored social impacts of climate change, and demonstrate that adaptation and mitigation policies cannot be effective without understanding the social systems and values of island societies.
We survey 1,050 Chief Financial Officers (CFOs) in the U.S., Europe, and Asia to directly assess whether their firms are credit constrained during the global financial crisis of 2008. We study ...whether corporate spending plans differ conditional on this survey-based measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally caused many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents said they canceled or postponed their planned investments. Our results also hold in Europe and Asia, and in many cases are stronger in those economies. Our analysis adds to the portfolio of approaches and knowledge about the impact of credit constraints on real firm behavior.
We use a unique data set that contains information on more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) around the world to investigate the degree to which ...executives delegate financial decisions and the circumstances that drive variation in delegation. Delegation does not appear to be monolithic; instead, our results show that it varies across corporate policies and also varies with the personal characteristics of the CEO. We find that CEOs delegate financial decisions for which they need the most input, when they are overloaded, and when they are distracted by recent acquisitions. CEOs delegate less when they are knowledgeable (long-tenured or with a finance background). Capital is allocated based on “gut feel” and the personal reputation of the manager running a given division. Finally, corporate politics and corporate socialism affect capital allocation in European and Asian firms.
We provide new evidence that the subjective “look of competence” rather than beauty is important for CEO selection and compensation. Our experiments, studying the facial traits of CEOs using nearly ...2,000 subjects, link facial characteristics to both CEO compensation and performance. In one experiment, we use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent. In a third experiment, subjects numerically score the facial traits of CEOs. We find competent looks are priced into CEO compensation, more so than attractiveness. Our evidence suggests this premium has a behavioral origin. First, we find no evidence that the premium is associated with superior performance. Second, we separately analyze inside and outside CEO hires and find that the competence compensation premium is driven by outside hires—the situation where first impressions are likely to be more important.
This paper was accepted by Lauren Cohen, finance
.
The management of political risk Giambona, Erasmo; Graham, John R.; Harvey, Campbell R.
Journal of international business studies,
05/2017, Letnik:
48, Številka:
4
Journal Article
Recenzirano
We explore a long-standing prediction in the international business literature that managers' subjective perceptions of political risk – not just the level of risk – are important for how firms ...manage political risk. The importance attributed to political risk by corporate executives has increased over the last 15 years and our results show that political risk is now considered more important than commodity (input) risk. Our analysis suggests that nearly 50% of firms avoid (not simply reduce) foreign direct investment because of political risk. Using a unique survey-based psychometric evaluation of manager risk aversion, we show that firms with risk averse executives are more likely to avoid investment in politically risky countries – a key implication of behavioral models. This relation is economically stronger when agency problems are more likely to be severe: for example, when executives are less aligned with shareholder value maximization, and when executives are younger (and therefore might put their personal career concerns in front of shareholders' interests). While numerous studies have shown that political risk affects foreign direct investment using objective measures of such risk (electoral uncertainty, conflicts, etc.), our study documents that executives' subjective perceptions of political risk are also important for political risk management.
People are more willing to bet on their own judgments when they feel skillful or knowledgeable. We investigate whether this "competence effect" influences trading frequency and home bias. We find ...that investors who feel competent trade more often and have more internationally diversified portfolios. We also find that male investors, and investors with larger portfolios or more education, are more likely to perceive themselves as competent than are female investors, and investors with smaller portfolios or less education. Our paper also contributes to understanding the theoretical link between overconfidence and trading frequency. Existing theories on trading frequency have focused on one aspect of overconfidence, i.e., miscalibration. Our paper offers a potential mechanism for the "better-than-average" aspect of overconfidence to influence trading frequency. In the context of our paper, overconfident investors tend to perceive themselves to be more competent, and thus are more willing to act on their beliefs, leading to higher trading frequency.
This article uses a unique dataset to study how firms managed liquidity during the 2008—2009 financial crisis. Our analysis provides new insights on interactions between internal liquidity, external ...funds, and real corporate decisions, such as investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the characteristics of these facilities (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, in contrast, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on corporate spending.
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