Risk Perception and Decision-Making by the Corporate Elite: Empirical Evidence for Netherlands-based Companies
Bert de Groot,
Rene Segers () and
Philip Hans Franses
No ERS-2012-013, ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam
We study risk perception and actual decision-making by the corporate elite, where we consider CEOs, CFOs and non-executives. We collect data for many members of the elite for Netherlands-based companies using the vignettes method. We find that CEOs are more risk tolerant but do not act accordingly by demanding higher returns. CFOs and non-executives are found to be more risk-averse; but, interestingly, only the non-executives demand higher returns more than CEOs do. Differences in demanded returns across CEOs and CFOs are found to be negligible. When decision makers mature and get more experienced, they tend to ask higher returns on investment. For all members of the corporate elite it holds that overconfidence is consistently related to higher risk tolerance, whereas those degrees of overconfidence are similar.
Keywords: Behavioral corporate finance; CEO; CFO; Corporate investment behavior; Managerial biases; Non-executive board members; Overconfidence (search for similar items in EconPapers)
JEL-codes: D80 G1 G14 G31 G34 (search for similar items in EconPapers)
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