Conglomerate Investment, Skewness, and the CEO Long Shot Bias

59 Pages Posted: 2 Sep 2011 Last revised: 20 Jul 2017

See all articles by Christoph Schneider

Christoph Schneider

Universität Münster

Oliver G. Spalt

University of Mannheim - Business School; European Corporate Governance Institute (ECGI)

Date Written: June 30, 2015


Do behavioral biases of executives matter for corporate investment decisions? Using segment-level capital allocation in multi-segment firms ("conglomerates") as a laboratory, we show that capital expenditure is increasing in the expected skewness of segment returns. Conglomerates invest more in high-skewness segments than matched standalone firms, and trade at a discount, which indicates overinvestment that is detrimental to shareholder wealth. Using geographical variation in gambling norms, we find that the skewness-investment relation is particularly pronounced when CEOs are likely to find long shots attractive. Our findings suggest that CEOs allocate capital with a long shot bias.

Keywords: Behavioral Corporate Finance, Skewness, Investment

JEL Classification: G11, G31, G34

Suggested Citation

Schneider, Christoph and Spalt, Oliver G., Conglomerate Investment, Skewness, and the CEO Long Shot Bias (June 30, 2015). Journal of Finance, Vol. 71, Issue 2, pp. 635-672, 2016, Available at SSRN: or

Christoph Schneider

Universität Münster ( email )

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Münster, 48143
+492518322088 (Phone)

Oliver G. Spalt (Contact Author)

University of Mannheim - Business School ( email )

L5, 5
Mannheim, 68131

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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