Managerial Attitudes and Corporate Actions

Abstract:     
Traditional economic theory suggests no role for managerial attitudes in forming corporate policies. In contrast, our paper provides striking evidence based on psychometric tests administered to CEOs that personal (or behavioral) traits such as managerial risk aversion, time preference, and optimism are related to corporate financial policies. We also provide evidence consistent with a matching between the behavioral traits of executives and the kinds of companies they join; that is, certain types of firms attract executives with particular psychological profiles. Further, we provide new evidence that behavioral traits help explain compensation structure. Finally, we offer evidence that U.S. CEOs differ from non-U.S. CEOs in terms of their underlying attitudes. CEOs are also significantly more optimistic and risk-tolerant than the lay population.

Keywords: Managers, attitudes, risk aversion, capital structure, debt, acquisitions, corporate policies, behavioral corporate finance

JEL Classifications: G30, G32, G34

Working Paper Series