behavior corporate finance and managerial decision making behavior investing

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1、BehavioralFinanceDr.EvangelosVagenas-NanosRoom359A,MainBuilding,WestQuadrangleLectures10:BehavioralCorporateFinanceandManagerialDecision-Making.BehavioralInvestingContentsLecture10•Behaviouralcorporatefinanceandmanagerialdecision-making(AD,Ch.16)–Introduction(16.1)–Capitalbudgeting:easeofproc

2、essing,lossaversion,andaffect(16.2)–Case:SonyCorporation–Managerialoverconfidenceandinvestment(16.3-16.4)–Canmanagerialoverconfidencehaveapositiveside?(16.5)ContentsLecture10(2)–BehaviouralInvesting(AD,Ch.19)–Introduction(19.1)–Anomalyattenuation,stylepeergroups,andstyleinvesting(19.2)–Refini

3、nganomalycapture(19.3)–Multivariateapproaches(19.4)–Stylerotation(19.5)–Behaviouralinvesting(19.6)CapitalBudgetingErrors(16.1)•Easeofprocessing…–Mayleadtoinappropriateadoptionrules•Lossaversion…–Mayleadtoproblemswithabandonment•Affect…–MaycausemanagerstoavoidprofitableinvestmentsCapitalBudget

4、ingandEaseofProcessing(16.2)•Conventionalfinancetheorydemonstratesthat,whenproperlyapplied,NPVisoptimaldecisionruleforcapitalbudgetingpurposes.•GrahamandHarvey(JournalofFinancialEconomics,2001)survey392CFOsintheUSAoncostofcapital,capitalbudgeting,andcapitalstructureGrahamandHarveyStudy•Percen

5、tageofmanagersthatalwaysoralmostalwaysuseacertainmethod–InternalRateofReturn76%–NetPresentValue75%–Paybackperiod57%–AccountingRateofReturn20%–ProfitabilityIndex12%GrahamandHarveyStudy(2)•LargefirmsaresignificantlymorelikelytouseNPVthansmallfirms•CEOswithMBAsaresignificantlymorelikelythannon-M

6、BACEOstouseNPV•PubliccompaniesaremorelikelytouseNPVandIRRthanprivatecorporations•SmallfirmsusethepaybackperiodalmostasfrequentlyastheyuseNPVorIRRGrahamandHarveyStudy(3)•MatureCEOs(overage59)usepaybacksignificantlymoreoftenthanyoungerCEOs•PaybackisalsofrequentlyusedbyCEOswithlongtenure•Grahama

7、ndHarvey(2001,page201):“Insummary(..)ourresultssuggestincreasedprominenceofnetpresentvalueasanevaluationtechnique”•Brounen,DeJong,andKoedijk(FinancialManagement,2004)findsimilarresultsasGrahamandHarveyforalargesampleofEuropeancompaniesCapital