We study risk perception and actual decision-making by the corporate elite, where we consider CEOs, CFOs and non-executives. We collect data for many members of the elite for Netherlands-based companies using the vignettes method. We find that CEOs are more risk tolerant but do not act accordingly by demanding higher returns. CFOs and non-executives are found to be more risk-averse; but, interestingly, only the non-executives demand higher returns more than CEOs do. Differences in demanded returns across CEOs and CFOs are found to be negligible. When decision makers mature and get more experienced, they tend to ask higher returns on investment. For all members of the corporate elite it holds that overconfidence is consistently related to higher risk tolerance, whereas those degrees of overconfidence are similar.

Additional Metadata
Keywords Behavioral corporate finance, CEO, CFO, Corporate investment behavior, Managerial biases, Non-executive board members, Overconfidence
JEL Information, Knowledge, and Uncertainty: General (jel D80), General Financial Markets (jel G1), Information and Market Efficiency; Event Studies (jel G14), Capital Budgeting; Investment Policy (jel G31), Mergers; Acquisitions; Restructuring; Corporate Governance (jel G34)
Publisher Erasmus Research Institute of Management
Persistent URL hdl.handle.net/1765/37301
Series ERIM Report Series Research in Management
Citation
de Groot, E.A, Renes, S, Segers, R, & Franses, Ph.H.B.F. (2012). Risk Perception and Decision-Making by the Corporate Elite: Empirical Evidence for Netherlands-based Companies (No. ERS-2012-013). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/37301