Overconfidence and Early-life Experiences: The Impact of Managerial Traits on Corporate Financial Policies

Ulrike Malmendier, Geoffrey Tate and Jonathan Yan

No 15659, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions beyond traditional capital-structure determinants. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity. Such overconfident managers use less external finance and, conditional on accessing risky capital, issue less equity than their peers. Second, CEOs with Depression experience are averse to debt and lean excessively on internal finance. Third, CEOs with military experience pursue more aggressive policies, including heightened leverage. Complementary measures of CEO traits based on press portrayals confirm the results.

JEL-codes: D03 D21 D23 D53 D82 G14 G3 G31 G32 H2 H32 (search for similar items in EconPapers)
Date: 2010-01
Note: CF LE LS PE
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Citations: View citations in EconPapers (6)

Published as ULRIKE MALMENDIER & GEOFFREY TATE & JON YAN, 2011. "Overconfidence and Early-Life Experiences: The Effect of Managerial Traits on Corporate Financial Policies," The Journal of Finance, vol 66(5), pages 1687-1733.

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