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Managerial overconfidence in initial public offering decisions and its impact on macrodynamics and financial stability: Analysis using an agent-based model

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  • Rzeszutek, Marcin
  • Godin, Antoine
  • Szyszka, Adam
  • Augier, Stanislas

Abstract

In this study we build a macroeconomic agent-based model that is calibrated for the specific case of Poland to explore whether the overconfidence of top corporate managers in the context of their initial public offering (IPO) decisions is detrimental for the firms being managed in this way, the financial market dynamics, and the selected macroeconomic indicators. We found a contradiction between the micro and macro impacts of overconfidence. Overconfident firms showed better performance in terms of output than other firms but were also more exposed to stock market volatility, thereby making them more likely to default. The higher default rates of overoptimistic firms negatively impacted the banking sector and increased financial instability. Finally, we ran policy shocks and showed that increased financial instability can be offset by strengthening the regulation of the banking sector.

Suggested Citation

  • Rzeszutek, Marcin & Godin, Antoine & Szyszka, Adam & Augier, Stanislas, 2020. "Managerial overconfidence in initial public offering decisions and its impact on macrodynamics and financial stability: Analysis using an agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:dyncon:v:118:y:2020:i:c:s0165188920301330
    DOI: 10.1016/j.jedc.2020.103965
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    Cited by:

    1. Zhang, Ximeng & Liu, Deqing & Chen, Jie, 2024. "Managerial overconfidence and corporate resilience," Finance Research Letters, Elsevier, vol. 62(PA).
    2. Marcin Rzeszutek & Jørgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04723512, HAL.
    3. Marcin Rzeszutek & Jorgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2023. "Subjective Well-Being of Corporate Managers And Its Impact on Stock Market Volatility and Financial Stability During the Covid-19 Pandemic in Poland: Agent-Based Model Perspective," Documents de travail du Centre d'Economie de la Sorbonne 23017, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. Doumpos, Michalis & Zopounidis, Constantin & Gounopoulos, Dimitrios & Platanakis, Emmanouil & Zhang, Wenke, 2023. "Operational research and artificial intelligence methods in banking," European Journal of Operational Research, Elsevier, vol. 306(1), pages 1-16.
    5. Marcin Rzeszutek & Jørgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Post-Print hal-04723512, HAL.
    6. Marcin Rzeszutek & Jorgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Journal of Happiness Studies, Springer, vol. 25(7), pages 1-15, October.
    7. Hui, Wang & Xin-gang, Zhao & Ling-zhi, Ren & Fan, Lu, 2021. "An agent-based modeling approach for analyzing the influence of market participants’ strategic behavior on green certificate trading," Energy, Elsevier, vol. 218(C).
    8. Rzeszutek Marcin & Szyszka Adam & Okoń Szymon, 2023. "Behavioral biases in corporate risk management and investment decisions during the COVID-19 pandemic in Poland," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(1), pages 70-76, March.
    9. Zaremba, Adam & Szyszka, Adam & Long, Huaigang & Zawadka, Dariusz, 2020. "Business sentiment and the cross-section of global equity returns," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).

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