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

61 Pages Posted: 18 Jan 2010

See all articles by Ulrike Malmendier

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business; National Bureau of Economic Research (NBER)

Jonathan Yan

affiliation not provided to SSRN

Date Written: January 2010

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.

Suggested Citation

Malmendier, Ulrike and Tate, Geoffrey A. and Yan, Jonathan, Overconfidence and Early-Life Experiences: The Impact of Managerial Traits on Corporate Financial Policies (January 2010). NBER Working Paper No. w15659, Available at SSRN: https://ssrn.com/abstract=1537777

Ulrike Malmendier (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business ( email )

MD
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jonathan Yan

affiliation not provided to SSRN

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