Taxes, Debt, Investments and the Choice of Business Form with Overconfident and Pessimistic Entrepreneurs

Miglo, Anton; Brodziak, Magdalena

doi:10.2139/ssrn.3408732

Cited by 2 publications

(9 citation statements)

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“…The significant differences found between the explanatory variables in the sample are consistent with the behavioural literature predictions (e.g. Malmendier and Tate, 2005b; Ben-JSBED 31,1 David et al, 2007;Li and Tang, 2010;Malmendier et al, 2011;Ben-David et al, 2013;Maditinos et al, 2016;Rihab and Lotfi, 2016;Pikulina et al, 2017;Koo and Yang, 2018;Malmendier, 2018;He et al, 2019;Bukalska, 2019;Heaton, 2019;Miglo and Brodziak, 2019;Bolton et al, 2020;Byoun, 2021;Ikeda et al, 2021). Firms run by OCM present higher average values of total debt, tangibility assets and non-debt tax shields.…”

Section: Summary Statisticssupporting

confidence: 84%

“…they do not decide in a biased way), decision-making is socially ideal, that is projects with positive net present value (NPV) are carried out, unlike those with negative NPV. However, Miglo and Brodziak (2019) concluded that when this environment includes overconfident entrepreneurs, it results in overinvestment, and therefore, on average, many poor-quality projects are carried out. These authors only pointed out negative aspects relative to the managerial overconfident bias.…”

Section: Overconfident Managermentioning

confidence: 99%

“…Heaton, 2002;Malmendier and Tate, 2005b;Hackbarth, 2008;Ben-David et al, 2013;Pikulina et al, 2017;Koo and Yang, 2018;Malmendier, 2018;He et al, 2019;Ikeda et al, 2021), and that the OCM invest even in projects with a negative NPV (e.g. Miglo and Brodziak, 2019), (3) the third assumption reports to the greater investment sensitivity to cash flow in firms run by OCM (e.g. Malmendier and Tate, 2005a;Maditinos et al, 2016;Malmendier, 2018;Mohamed, 2021, among others).…”

Section: Measuring Managers' Overconfidencementioning

confidence: 99%

“…The literature indicates that the manager's cognitive biases, particularly those related to overconfidence, have effects on financing choices and thus direct repercussions on the firm's capital structure (e.g. Lin et al, 2008;Malmendier and Tate, 2008;Park and Kim, 2009;Oliver, 2010;Oliver and Mefteh, 2010;Malmendier et al, 2011;Adam et al, 2015;Rihab and Lotfi, 2016;Miglo and Brodziak, 2019;Heaton, 2019;Kumar et al, 2020;Miglo, 2020;among others).…”

Section: Introductionmentioning

confidence: 99%

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Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

Carvalho,

Pacheco,

Sardo

et al. 2024

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PurposeThe behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level.Design/methodology/approachBased on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms.FindingsThe results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process.Practical implicationsThe results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation.Originality/valueThe current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.

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Section: Summary Statisticssupporting

confidence: 84%

Section: Overconfident Managermentioning

confidence: 99%

Section: Measuring Managers' Overconfidencementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

Carvalho,

Pacheco,

Sardo

et al. 2024

JSBED

View full text Add to dashboard Cite

show abstract

“…We consider a model of start-up …rm choice of organizational structure with pessimistic entrepreneurs (analogous to " < 0 in our model) inMiglo and Brodziak (2019) and a case of capital structure with pessimistic entrepreneurs is discussed inMiglo (2020).…”

mentioning

confidence: 99%

A New Capital Structure Theory: The Four-Factor Model

Miglo

2020

SSRN Journal

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This article presents a new capital structure model based on four factors well documented in literature: asymmetric information, taxes, bankruptcy costs and decision-makers' overcon…dence. The model can simultaneously explain several facts about capital structure including those that remain puzzling from existing theories point of view eg. negative correlation between debt and pro…tability; why …rms issue equity etc. Unlike many advanced research on capital structure, a closed-form solution is obtained for most results.

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Taxes, Debt, Investments and the Choice of Business Form with Overconfident and Pessimistic Entrepreneurs

Cited by 2 publications

References 0 publications

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

A New Capital Structure Theory: The Four-Factor Model

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