Risk Perception and Decision-Making by the Corporate Elite: Empirical Evidence for Netherlands-Based Companies

36 Pages Posted: 30 Jul 2013

See all articles by Bert de Groot

Bert de Groot

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Sander Renes

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); University of Mannheim - SFB 884 Political Economy of Reforms

Rene Segers

Erasmus University Rotterdam (EUR)

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: September 25, 2012

Abstract

We study risk perception and actual decision-making by the corporate elite, where we consider CEOs, CFOs and non-executives. We collect data for many members of the elite for Netherlands-based companies using the vignettes method. We find that CEOs are more risk tolerant but do not act accordingly by demanding higher returns. CFOs and non-executives are found to be more risk-averse; but, interestingly, only the non-executives demand higher returns more than CEOs do. Differences in demanded returns across CEOs and CFOs are found to be negligible. When decision makers mature and get more experienced, they tend to ask higher returns on investment. For all members of the corporate elite it holds that overconfidence is consistently related to higher risk tolerance, whereas those degrees of overconfidence are similar.

Keywords: CEO, Behavioral corporate finance, CFO, Corporate investment behavior, Managerial biases, Non-executive board members, Overconfidence

Suggested Citation

de Groot, Bert and Renes, Sander and Segers, Rene and Franses, Philip Hans, Risk Perception and Decision-Making by the Corporate Elite: Empirical Evidence for Netherlands-Based Companies (September 25, 2012). ERIM Report Series Reference No. ERS-2012-013. Available at SSRN: https://ssrn.com/abstract=2303102

Bert De Groot (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Sander Renes

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

University of Mannheim - SFB 884 Political Economy of Reforms ( email )

L13, 17
Mannheim, 68131
Germany

HOME PAGE: http://www.sanderrenes.com

Rene Segers

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
133
Abstract Views
672
rank
217,629
PlumX Metrics