Eliciting Managerial Willingness to Invest: A Revealed-Preference Approach
Journal of Business Research, Volume 155, Part B, January 2023, 113375 https://doi.org/10.1016/j.jbusres.2022.113375
49 Pages Posted: 18 Sep 2019 Last revised: 18 Nov 2022
Date Written: September 17, 2019
Decision-making entails two underlying economic forces – capacity and willingness of taking on the subject under considerations. Capacity reflects available opportunities and typically weighs benefits against costs of the decision. Willingness pertains to the decision maker’s tolerance for the risk associated with this decision. Compared to capacity, willingness is arguably more primal and much harder to quantify. Our study illustrates a way to divulge managerial willingness by applying a revealed-preference approach toward a large sample of U.S. firms’ investment decisions in the setting of staggered passages of U.S. state antitakeover laws. Our results suggest that takeover threats suppress managerial desire to invest and that governments play a vital role in affecting managerial risk preference, and in turn, corporate strategic choices. Our approach, with modifications and refinements, has the potential of a broad application toward understanding how and under what conditions managerial willingness affects the decision-making processes.
Keywords: Managerial willingness to invest, investment Euler equation, state antitakeover laws, capital expenditure, acquisitions and R&D
JEL Classification: E22, G18, G31, G34, K22
Suggested Citation: Suggested Citation