Managerial Duties and Managerial Biases

90 Pages Posted: 29 Jun 2020

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)

Vincenzo Pezone

Goethe University Frankfurt

Hui Zheng

University of California, Berkeley

Date Written: June 2020

Abstract

Traits and biases of CEOs are known to significantly affect corporate outcomes. However, analyzing individual managers in isolation can result in misattribution. Our analysis focuses on the role of CEO and CFO overconfidence in financing decisions. We show that, when considered jointly, the distorted beliefs of the CFO, rather than the CEO, dominate in generating pecking-order financing distortions. CEO overconfidence still matters indirectly for financing as the CEO's (and not CFO's) type determines investors' assessment of default risk and the resulting financing conditions. Moreover, overconfident CEOs tend to hire overconfident CFOs whenever given the opportunity, generating a multiplier effect.

Suggested Citation

Malmendier, Ulrike and Pezone, Vincenzo and Zheng, Hui, Managerial Duties and Managerial Biases (June 2020). CEPR Discussion Paper No. DP14929, Available at SSRN: https://ssrn.com/abstract=3638033

Ulrike Malmendier (Contact Author)

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

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University of California, Berkeley - Haas School of Business ( email )

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National Bureau of Economic Research (NBER)

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Vincenzo Pezone

Goethe University Frankfurt ( email )

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Frankfurt am Main, 60323
Germany

Hui Zheng

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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