I Am The Firm! Eponymous Firms and Rose-Coloured Forecasts

37 Pages Posted: 18 Feb 2021

See all articles by Doron Kliger

Doron Kliger

University of Haifa

Yevgeny Mugerman

Bar Ilan University

Ruth Rooz

Hebrew University

Date Written: December 27, 2020

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. The obfuscation of the boundaries in eponymous firms between subjective illusory desires and objective realistic truths is revelatory and has far-reaching implications in various aspects of corporate decisions, which we suggest will require future research.

Keywords: management forecasts; cash flow forecasts; behavioral biases; eponymous firms; family ownership

Suggested Citation

Kliger, Doron and Mugerman, Yevgeny and Rooz, Ruth, I Am The Firm! Eponymous Firms and Rose-Coloured Forecasts (December 27, 2020). Available at SSRN: https://ssrn.com/abstract=3755887 or http://dx.doi.org/10.2139/ssrn.3755887

Doron Kliger

University of Haifa ( email )

Haifa 31905
Israel
(972)4-8249587 (Phone)
(972)4-8240059 (Fax)

Yevgeny Mugerman (Contact Author)

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

Ruth Rooz

Hebrew University ( email )

Jerusalem
Israel
0547802992 (Phone)
9 (Fax)

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