Announcements

The mission of the IRRC Institute is to provide thought leadership at the intersection of corporate responsibility and the informational needs of investors. While the Institute is a relatively new non-profit organization, formed with the proceeds of the sale of the Investor Responsibility Research Center in 2006, it continues the tradition and standards of objective research for which IRRC has been known since 1972. For more information, please see www.irrcinstitute.org.


Table of Contents

Overconfidence and the Timing of Share Repurchases

Jonathan F. Handy, Indiana University - Bloomington
Shane Underwood, Baylor University

Director Overconfidence

Randy Beavers, Seattle Pacific University, University of Alabama - Department of Economics, Finance and Legal Studies
Shawn Mobbs, University of Alabama - Culverhouse College of Commerce and Business Administration

Managerial Overconfidence and Corporate Risk Management

Tim Adam, Humboldt University
Chitru S. Fernando, University of Oklahoma - Michael F. Price College of Business
Evgenia V. Golubeva, University of Oklahoma - Division of Finance

Behavioral Ethics, Behavioral Compliance

Donald C. Langevoort, Georgetown University Law Center

Does Managerial Overconfidence Affect the Timing of SEOs?

Jonathan F. Handy, Indiana University - Bloomington

Is Cash More Valuable in the Hands of Overconfident CEOs?

Nihat Aktas, WHU - Otto Beisheim School of Management
Christodoulos Louca, Cyprus University of Technology
Dimitris Petmezas, University of Surrey - Surrey Business School


CORPORATE GOVERNANCE & SOCIOLOGY OR PSYCHOLOGY eJOURNAL
Sponsored by IRRC Institute

"Overconfidence and the Timing of Share Repurchases" Free Download

JONATHAN F. HANDY, Indiana University - Bloomington
Email:
SHANE UNDERWOOD, Baylor University
Email:

We investigate the efficiency of open market repurchases across managerial confidence types. We find that moderately confident managers repurchase at relatively lower prices than overconfident managers and at prices that are closer to the quarterly low stock price. Additionally, we analyze bid-ask spreads and show that spreads are relatively lower in quarters when overconfident managers are repurchasing shares. Our results suggest that repurchases by moderately confident managers are informed attempts to time the market, while repurchases by overconfident managers are either ill-informed or made for other reasons.

"Director Overconfidence" Free Download

RANDY BEAVERS, Seattle Pacific University, University of Alabama - Department of Economics, Finance and Legal Studies
Email:
SHAWN MOBBS, University of Alabama - Culverhouse College of Commerce and Business Administration
Email:

We examine overconfident CEO-directors and find they attend more board meetings, are more active in nominating committees, and have more independent directorships. Attendance is higher when multiple overconfident directors are present on the board. When an overconfident board selects a new CEO after a CEO turnover, they are more likely to appoint a better prepared and more reputable CEO. Overconfident boards are also more likely to select an overconfident CEO. We find evidence that the association between CEO-directors and greater CEO pay is driven solely by overconfident CEO-directors on the board. This evidence indicates overconfident CEO-directors exhibit significant influence on the board and over the firm’s CEO.

"Managerial Overconfidence and Corporate Risk Management" Free Download
Journal of Banking and Finance, Forthcoming

TIM ADAM, Humboldt University
Email:
CHITRU S. FERNANDO, University of Oklahoma - Michael F. Price College of Business
Email:
EVGENIA V. GOLUBEVA, University of Oklahoma - Division of Finance
Email:

We examine whether managerial overconfidence can help explain the observed discrepancies between the theory and practice of corporate risk management. We use a unique dataset of corporate derivatives positions that enables us to directly observe managerial reactions to their (speculative) gains and losses from market timing when they use derivatives. We find that managers increase their speculative activities using derivatives following speculative cash flow gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response is consistent with the selective self-attribution associated with overconfidence. Our time series approach to measuring overconfidence complements cross-sectional approaches currently used in the literature. Our results show that managerial overconfidence, which has been found to influence a number of corporate decisions, also affects corporate risk management decisions.

"Behavioral Ethics, Behavioral Compliance" Free Download
in Research Handbook on Corporate Crime and Financial Misdealing, Jennifer Arlen, ed., Edward Elgar Press, Forthcoming

DONALD C. LANGEVOORT, Georgetown University Law Center
Email:

The design of an effective legal compliance system for an organization requires skill at predicting human behavior. The surveillance portion of compliance involves estimates about who is most likely to misbehave, and when. The communicative aspect — training and guidance — requires thinking about what kinds of messages and incentives are most effective. Forensics and resolution are about, at least in part, learning from the experience and applying the lessons to future activity. It’s entirely plausible to use the economist’s assumption of rational choice — opportunism with guile — in making these predictions. But the realism of that assumption has been under attack for decades now. The label “behavioral compliance? can be attached to the design and management of compliance that draws from a wider range of behavioral predictions about individual and organizational behavior. This chapter surveys some of the contemporary research in behavioral ethics, and its usefulness to the architecture of compliance.

"Does Managerial Overconfidence Affect the Timing of SEOs?" Free Download

JONATHAN F. HANDY, Indiana University - Bloomington
Email:

I analyze how managerial overconfidence affects management’s propensity to issue seasoned equity offerings (SEOs). I focus separately on Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs), and further differentiate between Shelf offerings and Non-Shelf offerings. The main results suggest that overconfident managers are generally no less likely to perform an SEO than their moderately confident peers; however, they are less likely to time their SEOs alongside increased stock returns. Additionally, I find that SEO announcements made by overconfident managers are immediately followed by positive cumulative abnormal returns, and that these positive returns remain for the following two quarters after the offer. Ultimately, the results suggest that managerial overconfidence may diminish SEO market timing.

"Is Cash More Valuable in the Hands of Overconfident CEOs?" Free Download

NIHAT AKTAS, WHU - Otto Beisheim School of Management
Email:
CHRISTODOULOS LOUCA, Cyprus University of Technology
Email:
DIMITRIS PETMEZAS, University of Surrey - Surrey Business School
Email:

We investigate whether and how CEO overconfidence affects the value of cash. Cash is more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board increases the value of $1.00 cash holding by an additional amount of $0.49. This effect concentrates among firms that exhibit risky growth opportunities and are financially constrained or have high hedging needs. Additional analysis shows that cash holdings allow overconfident CEOs to increase future market share relative to industry rivals. Overall, our findings suggest that cash enables overconfident CEOs to exploit risky growth opportunities and improve product market performance.

^top

About this eJournal

Sponsored by: IRRC Institute

This eJournal distributes working and accepted paper abstracts that deal with all aspects of governance related to sociology and psychology. The journal welcomes research with a focus on using tools and methods from the fields of sociology and psychology to study corporate governance. Topics of interest include, but are not limited to, how corporate governance arrangements are shaped by or shape social norms, psychological inclinations, and cognitive perceptions.

Authors submitting their work to the CGN network should submit it to no more than two CGN eJournals. In particular, they should submit it to no more than one "methodological" CGN eJournal (CG & Accounting; CG & Economics; CG & Finance; CG & Law; CG & Management; CG & Sociology or Psychology; CG Educator; CG Practice Series), and should submit it to no more than one of the "sub-field" journals (Acquisitions, Mergers, Contests for Control, & Activism; Actors & Players; Arrangements & Laws; Bankruptcy, Financial Distress, & Reorganization; Capital Raising, Investments, Distributions, & Market Trading; Comparative; Compensation of Executives & Directors; Economic Consequences, History, Development, & Methodology; Disclosure, Internal Control, & Risk-Management; Governance, Organization, & Processes; Governance of Special Types of Firms; International/Non-US; or Social Responsibility & Social Impact).

Editor: Lucian A. Bebchuk, Harvard University

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

Distribution Services

If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

Distributed by

Corporate Governance Network (CGN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

CGN SUBJECT MATTER EJOURNALS

LUCIAN A. BEBCHUK
Harvard Law School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Email: bebchuk@law.harvard.edu

Please contact us at the above addresses with your comments, questions or suggestions for CGN-Sub.

Advisory Board

Corporate Governance & Sociology or Psychology eJournal

PATRICK BOLTON
Barbara and David Zalaznick Professor of Business, Columbia Business School - Department of Economics, Fellow, Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

BRIAN R. CHEFFINS
S.J. Berwin Professor of Corporate Law, University of Cambridge - Faculty of Law, Fellow, European Corporate Governance Institute (ECGI)

JOHN C. COFFEE
Adolf A. Berle Professor of Law and Director of the Center on Corporate Governance, Columbia Law School, Fellow, European Corporate Governance Institute (ECGI), Fellow, American Academy of Arts & Sciences

JULIAN R. FRANKS
Professor of Finance, London Business School, Fellow, Centre for Economic Policy Research (CEPR), Fellow, European Corporate Governance Institute (ECGI)

HENRY HANSMANN
Augustus E. Lines Professor of Law, Yale Law School, Fellow, European Corporate Governance Institute (ECGI)

OLIVER D. HART
Andrew E. Furer Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

BENGT R. HOLMSTRÖM
Paul A. Samuelson Professor of Economics, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)

KLAUS J. HOPT
Director (em.), Max Planck Institute for Comparative and International Private Law, European Corporate Governance Institute (ECGI)

MICHAEL C. JENSEN
Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

HIDEKI KANDA
Professor of Law, University of Tokyo - Graduate School of Law and Politics

STEVEN NEIL KAPLAN
Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER)

RAKESH KHURANA
Marvin Bower Professor of Leadership Development, Harvard Business School

DAVID F. LARCKER
James Irvin Miller Professor of Accounting, Stanford University - Graduate School of Business

CHRISTIAN LEUZ
J. Sondheimer Professor of International Economics, Finance and Accounting, University of Chicago - Booth School of Business, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI), Fellow, Center for Financial Studies (CFS), Fellow, University of Pennsylvania - Wharton Financial Institutions Center, Fellow, CESifo Research Network

MARCO PAGANO
Professor of Economics, University of Naples Federico II - Department of Economics and Statistics, Director, Centre for Studies in Economics and Finance (CSEF), President, Einaudi Institute for Economics and Finance (EIEF), Fellow, Centre for Economic Policy Research (CEPR), Fellow, European Corporate Governance Institute (ECGI)

RAGHURAM G. RAJAN
Eric J. Gleacher Distinguished Service Professor of Finance, University of Chicago - Booth School of Business, International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

ROBERTA ROMANO
Sterling Professor of Law and Director, Yale Law School Center for the Study of Corporate Law, Yale Law School, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

ANDREI SHLEIFER
Professor of Economics, Harvard University - Department of Economics, Fellow, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

LAURA T. STARKS
Charles E. and Sarah M. Seay Regents Chair in Finance, University of Texas at Austin - Department of Finance

RENE M. STULZ
Everett D. Reese Chair of Banking and Monetary Economics, Ohio State University (OSU) - Department of Finance, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

JEAN TIROLE
Scientific Director, University of Toulouse 1 - Industrial Economic Institute (IDEI), University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ), Fellow, Centre for Economic Policy Research (CEPR)

LUIGI ZINGALES
Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER), Fellow, Centre for Economic Policy Research (CEPR), University of Chicago - Polsky Center for Entrepreneurship, Fellow, European Corporate Governance Institute (ECGI)