AbstractUsing 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. JEL Codes: G31, G32, G34, D03, D22, D84. Copyright 2013, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Quarterly Journal of Economics.
Volume (Year): 128 (2013)
Issue (Month): 4 ()
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Other versions of this item:
- Itzhak Ben-David & John R. Graham & Campbell R. Harvey, 2010. "Managerial Miscalibration," NBER Working Papers 16215, National Bureau of Economic Research, Inc.
- Ben-David, Itzhak & Graham, John R. & Harvey, Campbell R., 2010. "Managerial Miscalibration," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2010-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
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