NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Managerial Overconfidence and Corporate Policies

Itzhak Ben-David, John R. Graham, Campbell R. Harvey

NBER Working Paper No. 13711
Issued in December 2007
NBER Program(s):Corporate Finance Program

Using a unique 10-year panel that includes more than 13,300 expected stock market return probability distributions, we find that executives are severely miscalibrated, producing distributions that are too narrow: realized market returns are within the executives’ 80% confidence intervals only 36% of the time. We show that executives reduce the lower bound of the forecast confidence interval during times of high market uncertainty; however, ex post miscalibration is worst during periods of high uncertainty. We also find that executives who are miscalibrated about the stock market show similar miscalibration regarding their own firms’ prospects. Finally, firms with miscalibrated executives seem to follow more aggressive corporate policies: investing more and using more debt financing.

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Document Object Identifier (DOI): 10.3386/w13711

Published: tzhak Ben-David, John R. Graham, Campbell R. Harvey , 2013. "Managerial Miscalibration," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1547-1584. citation courtesy of

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