What are the likely factors to affect CEOs?

The authors find that risk averse CEOs are significantly more likely to be compensated by salary and less likely to be compensated with performance related packages.

What is the chance that the job pays twice your current income for life?

(f) 50% chance that the job pays twice your current incomes for life and 50% chancethat the job pays 1/2 of your current income for life.

What was the format of the survey?

For most of the participants, rather than a fax, the version of the survey they were administered consisted of a series of linked HTML pages.

How many CFOs were faxed a survey instrument?

107 financial officers who are alumni of Duke University were faxed a survey instrument (the results do not change if faxed responses are ignored).

How many CEOs were invited to participate in the survey?

The referenced quarterly CFO survey can be found at http://www.cfosurvey.org.During the first two weeks of February 2006, the authors also invited four groups of U.S. CFOs toparticipate.

Open AccessJournal Article10.2139/SSRN.1432641

Managerial Attitudes and Corporate Actions

John R. Graham, +3 more

- 22 May 2012

- Social Science Research Network

914

TL;DR: The authors found that U.S. CEOs are significantly more optimistic and risk-tolerant than the rest of the population, and that their behavioral traits such as optimism and managerial risk-aversion are related to corporate financial policies.

Abstract: We administer psychometric tests to senior executives to obtain evidence on their underlying psychological traits and attitudes. We find U.S. CEOs differ significantly from non-U.S. CEOs in terms of their underlying attitudes. In addition, we find that CEOs are significantly more optimistic and risk-tolerant than the lay population. We provide evidence that CEO’s behavioral traits such as optimism and managerial risk-aversion are related to corporate financial policies. Further, we provide new empirical evidence that CEO traits such as risk aversion and time preference are related to their compensation.

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Most frequently asked questions

1. What contributions have the authors mentioned in the paper "Managerial attitudes and corporate actions" ?

The authors provide evidence that CEO ’ s behavioral traits such as optimism and managerial risk-aversion are related to corporate financial policies.. Further, the authors provide new empirical evidence that CEO traits such as risk aversion and time preference are related to their compensation.

2. What is the mode of inquiry of the psychologists?

Their mode of inquiry is similar to those of experimental economists (who often administer gambling experiments) and psychologists (who administer psychometric tests).

3. What is the reason for the height-wage disparity?

One explanation given for this disparity is that height, especially in the adolescent years, is important in developing confidence, which ultimately translates into the wage disparity.

4. What is the definition of aversion to sure losses?

Aversion to Sure LossesIf an executive is averse to sure losses then this may lead her/him to undertake actionssuch as “throwing good money after bad” in hopes of turning around what appears to be a sure loss.

TABLE III: COMPARISONS OF EXECUTIVE CHARACTERISTICS ACROSS SAMPLES. This table reports the summary statistics of specific personal characteritics of participating executives used in the analysisPanel A - C compares the characteristics of US CEOs against those of U.S. CFOs, U.S. CEOs with Non-U.S. CEOs and U.S. CFOs with Non-US CFOs respectively based on three sampling methods. The first, unconditional, uses the entire sample. The second sampling method matches firms one-on-one based on public/private status, randomly sampling when the number of observations are uneven. The third sample method matches firms one-on-one based on size categories. Panel A compares U.S. CEOs to U.S. CFOs using the 3 sampling methods described above, while Panel B compares the characteristics of US CEOs against those of non-US CEOs in the same way. Panel C compares the characteristics of U.S. CFOs against those of non-U.S. CFOs for the three sampling methods. Variables are defined as in Table II. Summary statistics reflects means where applicable. Significance at the 10% level is denoted by *, 5% by **, and 1% by ***. Number of observations are included in the panel header.

TABLE II PERSONAL CHARACTERISTICS OF CORPORATE EXECUTIVES. Panel A reports the summary statistics of personal characteristics of U.S. CEOs. Highly risk averse is a dummy variable for executives that prefer a job that pays with certainty their current salary against jobs that pay twice their current income with 50% chance and 80% of their current income with 50% chance. MBA degree is a dummy variable for executives with MBA degrees. Very optimistic is a dummy variable for an executive that has reported an average of 4 or higher in the LOT-R Test. Averse to sure losses is a dummy for executives who avoids sure losses now by hedging. Focused in Fin. & Acc. is a dummy for executives who have experience focused in financial and/or accounting fields. Tenure is the number of years the executive has been in current position. Impatient is a dummy variable for executives who prefer money now over money a year later at an interest of 30%. Stock

TABLE I FIRM CHARACTERISTICS SUMMARY STATISTICS. This table reports the summary statistics of specific firm characteristics used in the analysis. All variables reflect the survey responses of participating U.S. CEOs. Firm sales (size) is determined based a survey question categorizing firm sales into seven size groups. Category midpoints are used to create the firm size variable reported here. Category 1 includes firms with sales less than $25M, category 2 includes firms with sales between $25M and $99M, category 3 includes firms with sales between $100M and $499M, category 4 includes firms with sales between $500M and $999M, category 5 includes firms with sales between $1B and $4.9B, category 6 includes firms with sales between $5B and $9.9B, and category 7 includes firms with $10B or above in sales. Historical and expected growth reflect growth in sales. Number of operating segments refer to the number of segments in which the reporting executive has experience in prior to current position. Number of acquisitions reflects the number of acquisitions the firm has made over the past two years. Executive compensation variables (stocks, options, bonuses, and salary) are percentages of total compensation. Panel A: All Firms

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References

Journal Article•10.1037//0022-3514.67.6.1063

Distinguishing optimism from neuroticism (and trait anxiety, self-mastery, and self-esteem): a reevaluation of the Life Orientation Test

Michael F. Scheier, +2 more

- 01 Dec 1994

- Journal of Personality and Social Psycho...

TL;DR: Examination of the scale on somewhat different grounds, however, does suggest that future applications can benefit from its revision, and a minor modification to the Life Orientation Test is described, along with data bearing on the revised scale's psychometric properties.

...read moreread less

6.9K

•Journal Article•10.1016/J.JACCECO.2005.01.002

The economic implications of corporate financial reporting

John R. Graham, +3 more

- 01 Dec 2005

- Journal of Accounting and Economics

TL;DR: This paper found that the majority of managers would avoid initiating a positive NPV project if it meant falling short of the current quarter's consensus earnings, and more than three-fourths of the surveyed executives would give up economic value in exchange for smooth earnings.

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Journal Article•10.1016/S0304-405X(01)00044-7

The theory and practice of corporate finance: Evidence from the field

John R. Graham, +2 more

- 01 May 2001

- Journal of Financial Economics

TL;DR: The authors survey 392 CFOs about the cost of capital, capital budgeting, and capital structure and find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes.

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•Journal Article•10.1257/089533005775196732

Cognitive Reflection and Decision Making

Shane Frederick

- 01 Nov 2005

- Journal of Economic Perspectives

TL;DR: This paper introduced a three-item Cognitive Reflection Test (CRT) as a simple measure of one type of cognitive ability, i.e., the ability or disposition to reflect on a question and resist reporting the first response that comes to mind.

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Journal Article•10.1162/003355301556400

Boys will be Boys: Gender, Overconfidence, and Common Stock Investment

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- 01 Feb 2001

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TL;DR: Theoretical models predict that overconedent investors trade excessively as mentioned in this paper, and they test this prediction by partitioning investors on gender by analyzing the common stock investments of men and women from February 1991 through January 1997.

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Managerial Attitudes and Corporate Actions

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Most frequently asked questions

1. What contributions have the authors mentioned in the paper "Managerial attitudes and corporate actions" ?

2. What is the mode of inquiry of the psychologists?

3. What is the reason for the height-wage disparity?

4. What is the definition of aversion to sure losses?

5. What are the likely factors to affect CEOs?

6. What is the chance that the job pays twice your current income for life?

7. What was the format of the survey?

8. How many CFOs were faxed a survey instrument?

9. How many CEOs were invited to participate in the survey?

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Citations

CEO political ideology and credit risk assessment

The impact of managerial overconfidence on accounting conservatism: Empirical study

Does the CFO serving as the secretary of the board affect the financial statement comparability?—evidence from China

Product liability and firm owners’ delegation to overconfident managers

The effect of <scp>CEO</scp> adverse professional experience on management forecast pessimism

References

Distinguishing optimism from neuroticism (and trait anxiety, self-mastery, and self-esteem): a reevaluation of the Life Orientation Test

The economic implications of corporate financial reporting

The theory and practice of corporate finance: Evidence from the field

Cognitive Reflection and Decision Making

Boys will be Boys: Gender, Overconfidence, and Common Stock Investment

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