Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 635-672 |
| Journal | Journal of Finance |
| Volume | 71 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2016 |
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Keywords
- Behavioral Corporate Finance
- Skewness
- Investment
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Conglomerate investment, skewness, and the CEO long shot bias. / Schneider, C.A.R.; Spalt, Oliver.
In: Journal of Finance, Vol. 71, No. 2, 2016, p. 635-672.Research output: Contribution to journal › Article › Scientific › peer-review
TY - JOUR
T1 - Conglomerate investment, skewness, and the CEO long shot bias
AU - Schneider, C.A.R.
AU - Spalt, Oliver
PY - 2016
Y1 - 2016
N2 - Do behavioral biases of executives matter for corporate investment decisions? Using segment-level capital allocation in multi-segment firms ("conglomerates") as a laboratory, we show that capital expenditure is increasing in the expected skewness of segment returns. Conglomerates invest more in high-skewness segments than matched standalone firms, and trade at a discount, which indicates overinvestment that is detrimental to shareholder wealth. Using geographical variation in gambling norms, we find that the skewness-investment relation is particularly pronounced when CEOs are likely to find long shots attractive. Our findings suggest that CEOs allocate capital with a long shot bias.
AB - Do behavioral biases of executives matter for corporate investment decisions? Using segment-level capital allocation in multi-segment firms ("conglomerates") as a laboratory, we show that capital expenditure is increasing in the expected skewness of segment returns. Conglomerates invest more in high-skewness segments than matched standalone firms, and trade at a discount, which indicates overinvestment that is detrimental to shareholder wealth. Using geographical variation in gambling norms, we find that the skewness-investment relation is particularly pronounced when CEOs are likely to find long shots attractive. Our findings suggest that CEOs allocate capital with a long shot bias.
KW - Behavioral Corporate Finance
KW - Skewness
KW - Investment
U2 - 10.1111/jofi.12379
DO - 10.1111/jofi.12379
M3 - Article
VL - 71
SP - 635
EP - 672
JO - The Journal of Finance
JF - The Journal of Finance
SN - 0022-1082
IS - 2
ER -