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Ceo Emotional Bias And Capital Structure Choice. Bayesian Network Method

Author

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  • Mohamed Ali AZOUZI

    () (Higher Institute of Business Administration (ISAAS), University of Sfax, Sfax, Tunisia)

  • Anis JARBOUI

    () (Higher Institute of Business Administration (ISAAS), University of Sfax, Sfax, Tunisia)

Abstract

This research examines the determinants of firms’ capital structure introducing a behavioral perspective that has received little attention in corporate finance literature. The following central hypothesis emerges from a set of recently developed theories: firms managed by loss aversion, optimistic and/or overconfident people will choose more levered financing structures than others, ceteris paribus. The article explains that the main cause of capital structure choice is CEO emotional bias (optimism, loss aversion and overconfidence). I will use Bayesian network method to examine this relation. Emotional bias has been measured by means of a questionnaire comprising several items. As for the selected sample, it has been composed of some100 Tunisian executives. Our results have revealed that the behavioral analysis of financing options implies the presence of pecking order choice (Pecking Order Theory, POT). CEO (optimistic, loss aversion, and overconfidence) prefer to finance their projects primarily through internal capital, by debt in the second hand and finally by equity.

Suggested Citation

  • Mohamed Ali AZOUZI & Anis JARBOUI, 2012. "Ceo Emotional Bias And Capital Structure Choice. Bayesian Network Method," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 2(2), pages 47-70, June.
  • Handle: RePEc:rom:bemann:v:2:y:2012:i:2:p:47-70
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Salima TAKTAK & Mohamed Ali AZOUZI & Mohamed TRIKI, 2013. "Why Entrepreneur Overconfidence Affect Its Project Financial Capability: Evidence From Tunisia Using The Bayesian Network Method," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 3(2), pages 61-84, June.
    2. AZOUZI Mohamed Ali & JARBOUI Anis, 2013. "Why CEO Emotional Biases Affect Firm Assets Specificity Choice Bayesian Network Method: The Evidence from Tunisia," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 329-350, March.

    More about this item

    Keywords

    Emotional bias; Corporate finance; Optimism; Overconfidence; Loss aversion; Capital structure Choice; Bayesian network;

    JEL classification:

    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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