Behavioral Corporate Finance
Friday, Jan. 6, 2017 7:30 PM – 9:30 PM
- Chair: Ulrike Malmendier, University of California-Berkeley
Afraid of your workers - CEOs, strikes and financing decisions
AbstractWe analyze how strike threats affect firms' financing decisions. For identification, we focus on CEOs who experience a strike in another firm in which they serve as director. A matching approach controls for the potential endogeneity of outside directorships. Theoretically, CEOs may either increase leverage and decrease cash to improve the bargaining position with labor or apply more conservative financial policies to enhance their financial flexibility. We find evidence for both perspectives. If CEOs experience an actual strike, they subsequently reduce leverage and increase cash in their firms. By contrast, CEOs engage in the opposite behavior after observing labor negotiations in which a strike could be averted.
The Face of Risk: CEO Testosterone and Risk Taking Behavior
AbstractThis study examines whether the CEO’s facial masculinity—measured by facial width-to-height ratio (fWHR, hereafter)—can predict the riskiness of his firm’s financial and investment policy. Our sample consists of male CEOs who are covered by the Execucomp and BoardEx databases and who also held an interview with CNBC over the period 1997-2009. Controlling for selection bias and overconfidence, we find that the CEO’s fWHR is positively associated with (i) stock return volatility, (ii) idiosyncratic risk, (iii) leverage ratio, (iv) acquisitiveness, and (v) the Vega of CEO compensation. Overall, our findings suggest that a CEO’s personal traits can be a key predictor of the riskiness of corporate financial and investment policy.
Anchoring and Acquisitions
AbstractFor a comprehensive sample of mergers and acquisitions that involve both public and private targets, we find a reference price effect: acquirers earn higher (lower) announcement period returns when their pre-announcement stock prices are well below (near) their 52-week highs. This effect is not explained by valuation levels. Instead, the reference price effect is stronger in deals involving greater uncertainty, acquirers with greater individual investor ownership, and acquisitions of unlisted targets. Consistent with an anchoring bias, the reference price effect is reversed in the subsequent year. Our results survive a battery of control variables, robustness checks, and falsification tests.
- G3 - Corporate Finance and Governance