Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence

Landier, Augustin; Thesmar, David

doi:10.2139/ssrn.479581

Cited by 85 publications

(75 citation statements)

References 26 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…These are not the only authors to find evidence that effort increases with optimism - Landier & Thesmar (2003), among others, found similar evidence.…”

Section: Brief Overview Of Psychological Evidencementioning

confidence: 75%

Unrealistic Optimism: Still a Neglected Trait

Coelho

2009

J Bus Psychol

View full text Add to dashboard Cite

Unrealistic optimism is all around us, and it is a well documented psychological phenomenon. It has important implications in many economic and managerial contexts, yet economists, managers and policy makers still ignore it or fail to understand its characteristics. Here we investigate the psychology of over-optimism and bring to bear substantial psychological evidence that most people are prone to groundless optimism when faced with economic and management decisions. Although the policy and welfare implications of such a widespread phenomenon are vast, we argue that they have been neglected by policy makers. We end by challenging the current public policy trend of extending lending to business start-ups, on the grounds that it may create a real road to ruin.

show abstract

“…These are not the only authors to find evidence that effort increases with optimism - Landier & Thesmar (2003), among others, found similar evidence.…”

Section: Brief Overview Of Psychological Evidencementioning

confidence: 75%

Unrealistic Optimism: Still a Neglected Trait

Coelho

2009

J Bus Psychol

View full text Add to dashboard Cite

show abstract

“…Financial contracting Landier and Thesmar (2004) examine financial contracting between rational investors and optimistic entrepreneurs. 19 They highlight two aspects of contracting with optimists.…”

Section: C1 Real Investmentmentioning

confidence: 99%

Behavioral Corporate Finance: A Survey

Baker

Ruback²,

Wurgler

2004

SSRN Journal

View full text Add to dashboard Cite

Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

show abstract

“…In addition to Landier and Thesmar (2006) and Ben-David, Graham, and Harvey (2007), mentioned above, Ito (1990) finds belief heterogeneity among currency traders within and between firms. Odean (1999) demonstrates that investors with brokerage accounts tend to trade too often and interprets the finding as evidence of belief heterogeneity.…”

Section: Introductionmentioning

confidence: 89%

“…For example, Landier and Thesmar (2006) show that a one standard deviation increase in an entrepreneur's expectations error results in an average increase in short term credit line usage of 20% -half the sample standard deviation. Ben-David, Graham, and Harvey (2007) show that overconfidence on the part of CFOs drives firms to invest more, pay out less in dividends, change debt ratios, and engage in market timing.…”

Section: Introductionmentioning

confidence: 99%

Disagreement and Learning in a Dynamic Contracting Model

Adrian

Westerfield

2008

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe present a dynamic contracting model in which the principal and the agent disagree about the resolution of uncertainty, and we illustrate the contract design in an application with Bayesian learning. The disagreement creates gains from trade that the principal realizes by transferring payment to states that the agent considers relatively more likely, a shift that changes incentives. In our dynamic setting, the interaction between incentive provision and learning creates an intertemporal source of "disagreement risk" that alters optimal risk sharing. An endogenous regime shift between economies with small and large belief differences is present, and an early shock to beliefs can lead to large persistent differences in variable pay even after beliefs have converged. Under risk-neutrality, "selling the firm" to the agent does not implement the first-best outcome because it precludes state-contingent trades.

show abstract

Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence

Cited by 85 publications

References 26 publications

Unrealistic Optimism: Still a Neglected Trait

Unrealistic Optimism: Still a Neglected Trait

Behavioral Corporate Finance: A Survey

Disagreement and Learning in a Dynamic Contracting Model

Contact Info

Product

Resources

About