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What were they thinking? Reports from interviews with senior finance executives in the lead-up to the GFC


  • Les Coleman
  • Sean Pinder


The impact of the Global Financial Crisis (GFC) on capital markets has demonstrated that corporate stakeholders (including shareholders, lenders and independent board members) need to be far more aware of the decision-making processes followed by corporate executives. Gaining insight into these processes is difficult at any time, yet attempting to uncover (in any meaningful sense) how executives reached critical decisions in the lead-up to the GFC is almost impossible in hindsight. This article overcomes this problem in that it reports the results of interviews conducted with senior Australian finance executives in the lead-up to the GFC. These interviews were designed to elicit granular explanations for the rationale underpinning major corporate finance decisions, and their timing and subjects provide a unique ex ante profile of the perceptions of senior executives in large firms as the GFC developed. The most significant finding is that the corporate executives shared a decision framework with core features similar to those of financiers that are thought to have contributed to the GFC, particularly permanently increasing asset prices, easy liquidity and safety in powerful risk management techniques. Our findings have strong implications for independent board members who - at least in hindsight - failed to identify and mitigate risks from systemic reliance on appreciating markets and the inevitability of mean reversion.

Suggested Citation

  • Les Coleman & Sean Pinder, 2010. "What were they thinking? Reports from interviews with senior finance executives in the lead-up to the GFC," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 7-14.
  • Handle: RePEc:taf:apfiec:v:20:y:2010:i:1-2:p:7-14 DOI: 10.1080/09603100903262533

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    References listed on IDEAS

    1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
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    5. Scheicher, Martin, 2008. "How has CDO market pricing changed during the turmoil? Evidence from CDS index tranches," Working Paper Series 910, European Central Bank.
    6. Coudert, Virginie & Gex, Mathieu, 2008. "Does risk aversion drive financial crises? Testing the predictive power of empirical indicators," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 167-184, March.
    7. Benjamin Yibin Zhang & Hao Zhou & Haibin Zhu, 2009. "Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5099-5131, December.
    8. Jeffery D Amato & Eli M Remolona, 2003. "The credit spread puzzle," BIS Quarterly Review, Bank for International Settlements, December.
    9. Ingo Fender & John Kiff, 2004. "CDO rating methodology: Some thoughts on model risk and its implications," BIS Working Papers 163, Bank for International Settlements.
    10. Allen Frankel, 2006. "Prime or not so prime? An exploration of US housing finance in the new century," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. ArgandoƱa, Antonio, 2012. "Three ethical dimensions of the financial crisis," IESE Research Papers D/944, IESE Business School.
    2. repec:kap:jbuset:v:144:y:2017:i:2:d:10.1007_s10551-015-2831-x is not listed on IDEAS
    3. Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers WP389, Economic and Social Research Institute (ESRI).

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