Discussion Paper Details

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Title: Managerial Duties and Managerial Biases

Author(s): Ulrike M. Malmendier, Vincenzo Pezone and Hui Zheng

Publication Date: June 2020


Programme Area(s): Financial Economics

Abstract: Traits and biases of CEOs are known to significantly affect corporate outcomes. However, analyzing individual managers in isolation can result in misattribution. Our analysis focuses on the role of CEO and CFO overconfidence in financing decisions. We show that, when considered jointly, the distorted beliefs of the CFO, rather than the CEO, dominate in generating pecking-order financing distortions. CEO overconfidence still matters indirectly for financing as the CEO's (and not CFO's) type determines investors' assessment of default risk and the resulting financing conditions. Moreover, overconfident CEOs tend to hire overconfident CFOs whenever given the opportunity, generating a multiplier effect.

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Bibliographic Reference

Malmendier, U, Pezone, V and Zheng, H. 2020. 'Managerial Duties and Managerial Biases'. London, Centre for Economic Policy Research.