Analyze how representativeness leads managers investors and

Question

Corporate governance and behavior finance

5-8 double spaced pages (not counting references page or appendices)

Summarize the main points in the paper, and then critically analyze the paper's conclusions in the context using 2-3 of the following:

• Explain why reliance on heuristics and susceptibility to framing effects make managers vulnerable to making faulty decisions that reduce firm value

• Apply the effects of potential biases with the use of valuation heuristics to real world scenarios provided by the instructor

• Distinguish between the remedies appropriate to agency conflicts and the remedies appropriate to behavioral biases in capital budgeting and dividend policy decision making

• Compute the adjusted present value to assess how the managers of a financially constrained firm with undervalued equity should choose between repurchasing shares and undertaking new profitable projects

• Analyze how representativeness leads managers, investors. and market strategists to form biased judgments about the market risk premium

• Analyze personal and corporate financial decision making in the context of recent findings from neuroscience and the role of emotions

• Analyze the potential for stock option-based compensation to exacerbate agency conflicts due to aversion to a sure loss and overconfidence.

Cronqvist, H., Makhija, A. K., &Yonker, S. E. (2012). Behavioral consistency in corporate finance: CEO personal and corporate leverage. Journal Of Financial Economics, 10320-40. doi:10.1016/j.jfineco.2011.08.005.

Answer 1

The assignment is all about corporate governance and behavior finance in around 5 to 8 single spaced pages (not including references page or appendices). Sum up the major points in the paper and then critically examine the paper's conclusions in the context utilizing 2 to 3 of the given: 1) Describe why reliance on heuristics and susceptibility to framing consequences make managers vulnerable to making faulty decisions which decrease firm value. 2) Implement the consequences of potential biases by the use of valuation heuristics to real world scenarios given by the instructor. 3) Differentiate between the remedies suitable to agency conflicts and the remedies proper to behavioral biases in capital budgeting and dividend policy decision making. 4) Calculate the adjusted present value to evaluate how the managers of a financially constrained firm with undervalued equity must select between repurchasing shares and undertaking latest profitable projects.