Managers’ Escalation Behavior in Equity Investment Decisions and the Role of Corporate Governance

Chih-Jen Huang, Amy Yueh-Fang Ho, Hsin-Yu Liang and Chun-Hung Chiang

Emerging Markets Finance and Trade, 2016, vol. 52, issue 4, 825-842

Abstract: The aim of this study is to investigate the relationship between free cash flows and escalation behavior in the long-term stock buying decisions for the firms listed in Taiwan. The main findings include: (1) Managers tend to exhibit the escalation behavior in the long-term equity investment. (2) There is a positive association between the level of free cash flows and the magnitude of managers’ behavioral escalation. (3) The corporate governance mechanisms play a contributory role in mitigating the escalation behavior. The evidence is robust across subsamples for electronic versus non-electronic industries, growth versus value firms, and loss versus gain firms.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:52:y:2016:i:4:p:825-842

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DOI: 10.1080/1540496X.2015.1117872

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