Addressing Managerial Loss Aversion for the Corporate Value Creation Process: A Critical Analysis of the Literature and Preliminary Approaches

Riccardo Camilli (), Alessandro Mechelli, Alessandra Stefanoni and Fabrizio Rossi
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Riccardo Camilli: Department of Management and Law, University of Rome Tor Vergata, 00133 Roma, Italy
Alessandro Mechelli: Department of Management and Law, University of Rome Tor Vergata, 00133 Roma, Italy
Alessandra Stefanoni: Department of Economics and Business, University of Tuscia, 01100 Viterbo, Italy
Fabrizio Rossi: Department of Economics and Business, University of Tuscia, 01100 Viterbo, Italy

Administrative Sciences, 2023, vol. 14, issue 1, 1-16

Abstract: To date, the studies on managerial loss aversion have produced contradictory findings, making it impossible to: (i) identify the ultimate impact of managerial loss aversion on the value that organisations create for themselves and for their stakeholders, and (ii) mitigate the effect of managerial loss aversion to improve corporate value creation. With the aim of filling this gap, the authors of this paper first performed a Systematic Literature Review (SLR), resulting in 65 relevant papers. The 65 papers were then analysed through a Thematic Analysis (TA), which was aimed at isolating and revising the single effects of managerial loss aversion on the corporate value creation process. Once it became clear when and how managerial loss aversion leads to negative impacts on corporate value creation (such as suboptimal investments in corporate social responsibility, short-term-oriented budget expenditures, illegal corporate conduct in favourable contexts, and low demand for audit quality), a novel theoretical framework was built. This framework proposes some preliminary approaches to mitigate these detrimental effects. In particular, future empirical research may operationalise potential debiasing strategies, derived from critical analysis of the literature, to reduce managerial loss aversion in different business settings, thereby improving corporate value creation.

Keywords: managers; loss aversion; managerial loss aversion; corporate value creation process; systematic literature review (search for similar items in EconPapers)
JEL-codes: L M M0 M1 M10 M11 M12 M14 M15 M16 (search for similar items in EconPapers)
Date: 2023
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