Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.

<h4>Objective</h4>This study aims to connect two strands of the psychology and economics literature, i.e., behavioural finance and agent-based macroeconomics, to assess the impact of managerial overconfidence at the micro and macro levels of the economy as a whole.<h4>Method</h4...

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Autores principales:	Marcin Rzeszutek, Antoine Godin, Adam Szyszka, Stanislas Augier
Formato:	article
Lenguaje:	EN
Publicado:	Public Library of Science (PLoS) 2021
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/190591f4ea1e404884de7f68ed23889c
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spelling	oai:doaj.org-article:190591f4ea1e404884de7f68ed23889c2021-12-02T20:17:47ZManagerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.1932-620310.1371/journal.pone.0255537https://doaj.org/article/190591f4ea1e404884de7f68ed23889c2021-01-01T00:00:00Zhttps://doi.org/10.1371/journal.pone.0255537https://doaj.org/toc/1932-6203<h4>Objective</h4>This study aims to connect two strands of the psychology and economics literature, i.e., behavioural finance and agent-based macroeconomics, to assess the impact of managerial overconfidence at the micro and macro levels of the economy as a whole.<h4>Method</h4>We build a macroeconomic stock-flow consistent 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 capital structure decisions is detrimental for the firms being managed in this way, the financial market dynamics, and the selected macroeconomic indicators. We model heterogeneous firms with different capital structure decision criteria depending on their degree of managerial overconfidence. Our model also includes a complete macroeconomic closure with aggregated households, capital producers, banking, and a public sector.<h4>Results</h4>We find that firms with overconfident managers outperform in terms of investment and size but are also more fragile, thereby making them more likely to default. Finally, we run policy shocks and show that while investors' flight to liquidity creates financial turmoil and increases the probability of default.<h4>Conclusions</h4>This paper contributes to the knowledge base by linking behavioural corporate finance and agent-based macroeconomics. In general, the excess overconfidence on the micro level, either an increase in the proportion of overconfident firms or a higher degree of overconfidence among managers, has a strong destabilizing impact on the economy as a whole on the macro level.Marcin RzeszutekAntoine GodinAdam SzyszkaStanislas AugierPublic Library of Science (PLoS)articleMedicineRScienceQENPLoS ONE, Vol 16, Iss 8, p e0255537 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q Marcin Rzeszutek Antoine Godin Adam Szyszka Stanislas Augier Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
description	<h4>Objective</h4>This study aims to connect two strands of the psychology and economics literature, i.e., behavioural finance and agent-based macroeconomics, to assess the impact of managerial overconfidence at the micro and macro levels of the economy as a whole.<h4>Method</h4>We build a macroeconomic stock-flow consistent 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 capital structure decisions is detrimental for the firms being managed in this way, the financial market dynamics, and the selected macroeconomic indicators. We model heterogeneous firms with different capital structure decision criteria depending on their degree of managerial overconfidence. Our model also includes a complete macroeconomic closure with aggregated households, capital producers, banking, and a public sector.<h4>Results</h4>We find that firms with overconfident managers outperform in terms of investment and size but are also more fragile, thereby making them more likely to default. Finally, we run policy shocks and show that while investors' flight to liquidity creates financial turmoil and increases the probability of default.<h4>Conclusions</h4>This paper contributes to the knowledge base by linking behavioural corporate finance and agent-based macroeconomics. In general, the excess overconfidence on the micro level, either an increase in the proportion of overconfident firms or a higher degree of overconfidence among managers, has a strong destabilizing impact on the economy as a whole on the macro level.
format	article
author	Marcin Rzeszutek Antoine Godin Adam Szyszka Stanislas Augier
author_facet	Marcin Rzeszutek Antoine Godin Adam Szyszka Stanislas Augier
author_sort	Marcin Rzeszutek
title	Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
title_short	Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
title_full	Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
title_fullStr	Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
title_full_unstemmed	Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.
title_sort	managerial overconfidence in capital structure decisions and its link to aggregate demand: an agent-based model perspective.
publisher	Public Library of Science (PLoS)
publishDate	2021
url	https://doaj.org/article/190591f4ea1e404884de7f68ed23889c
work_keys_str_mv	AT marcinrzeszutek managerialoverconfidenceincapitalstructuredecisionsanditslinktoaggregatedemandanagentbasedmodelperspective AT antoinegodin managerialoverconfidenceincapitalstructuredecisionsanditslinktoaggregatedemandanagentbasedmodelperspective AT adamszyszka managerialoverconfidenceincapitalstructuredecisionsanditslinktoaggregatedemandanagentbasedmodelperspective AT stanislasaugier managerialoverconfidenceincapitalstructuredecisionsanditslinktoaggregatedemandanagentbasedmodelperspective
_version_	1718374330380845056

Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective.

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