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					Overconfidence and Increased Corporate
         Investment Volatility



                  Andreas Mueller
                  Discussant
                  Samir srairi
               OBJECTIVES


   Influence of managerial   overconfidence   on
    investment decision.

   Impact of overconfidence during the different
    phases of the business cycle.
    Specification of the Empirical Models


   Model 1
     Investment = f (Profitability, Cash Flow)
   Model 2
     Investment = f (Profitability,Business Cycle)
   Model 3
     Investment = f (Profitability,Business Cycle,
                     Overconfidence,
                 interaction between Over. and BC)
                Empirical Results

   Corporate investment depend on profitability and CF.
   Investment decisions are also influenced by a cash
    cycle over the phases of economic development.
   Managerial confidence affects corporate investment
    depending on the phase of the business cycle:
    overconfidence increases investment during upswing
    phase, but has no effect during Downturns.
Strengths of paper

   A topical issue, paper explains the research topic very well.
   Well structured and Written.
   Based on several theories (neoclassical, agency,
     asymmetric information,...).
   Large period (10 years): analysis over time.
   Adequate sample size.
   Models: very well described and explained
Suggestions

   to more explain the definition of overconfidence and
    particularly the different measures of overconfidence
    (introduction).
   to transfer 2 paragrahs about limitations of paper and further
    research from section 5 discussion to conclusion.
   to test if we obtain the same results if we use fixed effect or
    random effect models.
   to add some variables related to the characteristics of firm
    (size, ownership structure,..) in the vector of control variables.
Questions


   What are the variables that influence overconfidence? (neither
    educational background nor age influence overconfidence).

   The results are specifically to German companies, it is possible
    to generalize results to others countries?

   The business of company does it influence the results?

				
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posted:3/30/2011
language:English
pages:8