Fusing Identities: The 'I Am the Firm' Phenomenon in Eponymous Enterprises

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 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. 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 on rational grounds. Furthermore, our tests show consistent results when applied to management forecasts disclosed by European firms.

Keywords: management forecasts, cash flow forecasts, behavioral bias, eponymous firms, family ownership.