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This paper examines empirically the effects of management ownership and ownership by large external shareholders on the capital structure of the firm from an agency theory perspective. The paper extends the US literature on the topic by examining the effect of interactions between management ownership and ownership by large external shareholders on the capital structure of UK firms. For a sample of UK firms, the paper provides empirical evidence that suggests the debt ratio is positively related to management ownership and negatively related to ownership by large external shareholders. Furthermore, the presence of a large external shareholder acts to negate the positive relationship between debt ratios and management ownership; in the presence of a large external shareholder, no significant relationship between debt ratios and management ownership exists. These findings are consistent with the hypothesis that the presence of large external shareholders affects the agency costs of debt and equity.Capital Structure, Management Ownership, External Shareholders,

This paper uses investor-level data to examine jointly the tendency of investors to succumb to the disposition effect and the house money effect; two behavioral biases premised on seemingly contradictory responses to prior gains/losses. We document three novel findings. First, the two effects can contemporaneously coexist in a single stock market and the majority of investors (53.5%) simultaneously succumb to both effects. Second, we demonstrate the importance of distinguishing prior outcomes across two dimensions; unrealized/realized and stock/portfolio level. Third, we find that the house money effect moderates the disposition effect, suggesting that cognitive biases need not always have negative consequences.

Stock prices in financial markets rise and fall, sometimes dramatically, thus asset returns exhibit volatility. In finance theory, volatility is synonymous with risk and as such represents the dispersion of asset returns about their central tendency (i.e. mean), measured by the standard deviation of returns. When individuals make investment decisions, influenced by perceptions of risk and volatility, they commonly do so by examining graphs of historic price sequences rather than returns. It is unclear, therefore, whether standard deviation of return is foremost in their mind when making such decisions. We conduct two experiments to examine the factors that may influence perceptions of financial volatility, including standard deviation along with a number of price-based factors. Also of interest is the influence of price sequence regularity on perceived volatility. While standard deviation may have a role to play in perception of volatility, we find evidence that other price-based factors play a far greater role. Furthermore, we report evidence to support the view that the extent to which prices appear irregular is a separate aspect of volatility, distinct from the extent to which prices deviate from central tendency. Also, while partially correlated, individuals do not perceive risk and volatility as synonymous, though they are more closely related in the presence of price sequence irregularity.

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License Newcastle University ePrints-eprint.ncl.ac.uk Duxbury D. Behavioral finance: insights from experiments II: biases, moods and emotions. Review of Behavioral Finance 2015, 7(2), 151-175.

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Newcastle University ePrints -eprint.ncl.ac.uk Duxbury D. Behavioral finance: insights from experiments I: theory and financial markets. Review of Behavioral Finance 2015, 7(1), 78-96. Abstract PurposeThe aim, here and in a companion paper (Duxbury, 2015), is to review the insights provided by experimental studies examining financial decisions and market behaviour. Design/methodology/approachFocus is directed on those studies examining explicitly, or with direct implications for, the most robustly identified phenomena or stylized facts observed in behavioral finance. The themes for this first paper are theory and financial markets. FindingsExperiments complement the findings from empirical studies in behavioral finance by avoiding some of the limitations or assumptions implicit in such studies. Originality/valueWe synthesize the valuable contribution made by experimental studies in extending our knowledge of the functioning of financial markets and the financial behavior of individuals.