I Am The Firm! Eponymous Firms and Rose-Coloured Forecasts
39 Pages Posted: 18 Feb 2021 Last revised: 25 Aug 2022
Date Written: August 24, 2022
Abstract
We invoke the famous Louis XIV quote “L'État, c'est moi,” applying it to the corporate world, and introduce the novel idea that a self-serving bias, which we define as “I Am The Firm,” is infused within the culture of certain companies. We hypothesize that the owners of eponymous firms – firms that bear the names of their owners – experience enhanced self-identification with their firms, and thus tend to inject their own subjective beliefs and desires into the realistic objective prospects of the firms. The “I am the firm” effect is a form of a self-serving bias, which arises from the blurring of boundaries between the owner and the corporate eponymy entity that carries the same name. Employing a unique corporate setting in Israel, we demonstrate that eponymous firms disclose unduly optimistic biased forecasts relative to their non-eponymous counterparts, which cannot be validated or justified solely by rational explanations.
Keywords: management forecasts; cash flow forecasts; behavioral biases; eponymous firms; family ownership
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