NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Overconfidence and Early-life Experiences: The Impact of Managerial Traits on Corporate Financial Policies

Ulrike Malmendier, Geoffrey Tate, Jonathan Yan

NBER Working Paper No. 15659
Issued in January 2010
NBER Program(s):   CF   LE   LS   PE

We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions beyond traditional capital-structure determinants. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity. Such overconfident managers use less external finance and, conditional on accessing risky capital, issue less equity than their peers. Second, CEOs with Depression experience are averse to debt and lean excessively on internal finance. Third, CEOs with military experience pursue more aggressive policies, including heightened leverage. Complementary measures of CEO traits based on press portrayals confirm the results.

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A data appendix is available at http://www.nber.org/data-appendix/w15659

This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w15659

Published: Overconfidence and Early - life Experiences: The Effect of Managerial Traits on Corporate Financial Policies (with G. Tate and J. Yan). Journal of Financ e , October 2011, vol. 66(5) , pp. 1687 - 1733.

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