Are companies managed by overconfident CEO financially constraint? Investment-cash flow sensitivity approach

Wrońska-Bukalska, Elżbieta

doi:10.24136/eq.2020.006

Cited by 13 publications

(14 citation statements)

References 60 publications

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“…If these internal resources are not available, however, they are not willing to raise equity because they perceive the company as undervalued by the market. Several scholars confirm these findings in various contexts (Bukalska, 2020;Huang et al 2011;Kim 2013;Koo and Yang 2018;Lin et al 2005). In addition, Choi et al (2018) show that when cash-flows fall, investment activity of very confident managers does not decrease linearly but less than would be rational.…”

Section: Investment Behavior and Share Buybacksmentioning

confidence: 59%

“…Additionally, several scholars observe a propensity of overconfident managers to hold high cash deposits and their reluctance to pay dividends (Andriosopoulos et al 2020;Chen et al 2020;Deshmukh et al 2013;Huang-Meier et al 2016;Kim and Kim 2019). Bukalska's (2020) results also indicate less financial constraints in companies led by overconfident managers. Finally, scholars observe particularities regarding lending.…”

Section: Financing Preferences and Dividend Paymentsmentioning

confidence: 79%

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Managerial overconfidence: promoter of or obstacle to organizational resilience?

Kunz

Sonnenholzner

2022

Rev Manag Sci

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Organizational resilience provides firms with the capability to face adverse circumstances successfully. Therefore, it constitutes an indispensable capability for each company. As indicated by Upper Echelon Theory, particularly executives and their personal traits exert a major impact on organizational capabilities, decision-making as well as action taking. Thus, they also should play an important role in promoting organizational resilience. However, so far literature lacks a comprehensive understanding regarding these relations. Accordingly, the present paper strives to add to such a comprehensive understanding with a particular focus on managerial overconfidence, one of the most widely and controversially discussed personality trait of executives. To pursue this goal, we develop a model comprising the relevant components of organizational resilience in terms of important resources, conduct a systematic literature review to identify the major corporate areas that are affected by managerial overconfidence and draw conclusions for the identified findings on the relation between organizational resilience and overconfidence. The analysis indicates a positive impact on social resources, a rather negative impact on procedural resources and a mixed impact on financial resources, where e.g. the effect on takeover activities is negative while the impact on financing preferences is at least partly positive. Moreover, the identified literature in large parts provides evidence regarding material resources, while social and procedural resources are covered to a lesser extent, indicating a need for further research.

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Section: Investment Behavior and Share Buybacksmentioning

confidence: 59%

Section: Financing Preferences and Dividend Paymentsmentioning

confidence: 79%

Managerial overconfidence: promoter of or obstacle to organizational resilience?

Kunz

Sonnenholzner

2022

Rev Manag Sci

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“…A considerable amount of literature has been published on financial behavior (Njegovanović, 2018(Njegovanović, , 2020Gavurova et al, 2019;Hadbaa, 2019;Dewi et al, 2020;Hartanto et al, 2020;Bukalska, 2020). A number of cross-sectional studies suggest that various cognitive limitations and psychological bias change household decision-making in general (Bacik et al, 2020;Jordão et al, 2020;Minasyan et al, 2020), and particularly on consumption/savings (Mody et al, 2012;Ceritoğlu, 2013;Mastrogiacomo & Alessie, 2014;Nguyen et al, 2019;Praditha et al, 2020) and debt/savings (Nofsinger, 2012;Kośny & Piotrowska, 2013;Kłopocka, 2017) ratios in boom-busts periods.…”

Section: Literature Reviewmentioning

confidence: 99%

Does the real estate market behavior predict the trust crisis in the financial sector? The case of the ECB and the Euro

Brychko

Vasilyeva

Rowland

et al. 2021

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Research background: Based on the history of financial crises, real estate market behavior could be thought of as a key benchmark of trust shifts in the financial sector of the economy. Plunging real estate asset prices accompanied by the financial "bubbles" explosion could be viewed as the harbinger ? even the cause ? of the public trust crash in the financial sector. Purpose of the article: This study intends to assess the extent to which the real estate market behavior determinants, along with financial sector consumers' feelings, are able to predict trust crises in the financial sector, namely to its primary institutions ? European Central Bank and the Euro. Methods: In order to estimate the probability of a trust crisis in the financial sector, two logistic regression logit models were developed based on two types of dependent variables as they reflect trust violations in the financial system primary institutions ? net trust in European Central Bank (Model I) and net support for the Euro (Model II). The research was conducted on quarterly panel data of the EU countries from the euro area covering the period from 2000 to 2019. Logit regressions employed for data processing and analysis were performed in the computational system STATISTICA. Findings & value added: The logit-modeling results show that determinants of irrational real estate buyers' behavior are powerless in predicting the escalation of the trust crisis in the Euro. However, binary models of real estate market behavior could be successfully used to predict the probability of the trust crisis in the European Central Bank. The results show that real house price indices, price to income ratio, price to rent ratio, and rent prices accompanied by the financial sector consumers' feelings are statistically significant, providing the best distribution between the normal times and periods of trust crisis in the European Central Bank. Irrational real estate market behavior may indicate serious problems in the trust violations in the European Central Bank, and it should be a signal for policymakers to take actions towards more efficient financial and real estate market regulation following the behavioral approach.

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“…Therefore, the relationship between investment and cash flow is higher in firms run by overconfident managers. Bukalska [8] finds that managerial overconfidence is positively associated with the investment-cash flow sensitivity. Despite the irrationality of managerial overconfidence, it still might exert some positive consequences.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The variable ocbkc denotes the interaction between managerial overconfidence (oc) and blockchain involvement (bkc). Columns (6) to (8) show that blockchain involvement makes the firm hold more cash. The interaction between managerial overconfidence and blockchain involvement has a positive but insignificant impact on cash holdings.…”

Section: Regression Modelsmentioning

confidence: 99%

Impacts of Managerial Overconfidence and Agency Costs on Cash Holdings Within Blockchain Firms

Niu

Zhao

2021

IEEE Access

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We study the effects of managerial overconfidence and agency costs in cash holdings of blockchain firms, where the overconfidence is defined as a cognitive bias that a manager will underestimate volatility in an uncertain environment. We develop a real-options game model that incorporates both overconfidence and agency costs. The theoretical results show that future investment opportunities are necessary for holding cash when agency costs are within the firm. Expected returns from blockchain projects decrease with managerial overconfidence. The level of corporate cash holdings increases with overconfidence and decreases with agency costs Using the data of Chinese listed firms from 2010 to 2019, we find that the regression results are consistent with our theoretical findings. Moreover, we find that the blockchain firms' cash holdings are higher than their peers. Our results shed some light on the impacts of behavioral characteristics on cash holdings.

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Are companies managed by overconfident CEO financially constraint? Investment-cash flow sensitivity approach

Cited by 13 publications

References 60 publications

Managerial overconfidence: promoter of or obstacle to organizational resilience?

Managerial overconfidence: promoter of or obstacle to organizational resilience?

Does the real estate market behavior predict the trust crisis in the financial sector? The case of the ECB and the Euro

Impacts of Managerial Overconfidence and Agency Costs on Cash Holdings Within Blockchain Firms

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