Conglomerate Investment, Skewness, and the CEO Long-Shot Bias

• Autores: Christoph Schneider, Oliver Spalt
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 71, Nº 2, 2016, págs. 635-672
• Idioma: inglés
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• Resumen

  • Do behavioral biases of executives matter for corporate investment decisions? Using segment-level capital allocation in multisegment firms (“conglomerates”) as a laboratory, we show that capital expenditure is increasing in the expected skewness of segment returns. Conglomerates invest more in high-skewness segments than matched stand-alone firms, and trade at a discount, which indicates overinvestment that is detrimental to shareholder wealth. Using geographical variation in gambling norms, we find that the skewness-investment relation is particularly pronounced when CEOs are likely to find long shots attractive. Our findings suggest that CEOs allocate capital with a long-shot bias.