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

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dc.abstract.enObjective 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. Method 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. Results 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. Conclusions 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.
dc.affiliationUniwersytet Warszawski
dc.contributor.authorSzyszka, Adam
dc.contributor.authorRzeszutek, Marcin
dc.contributor.authorGodin, Antoine
dc.contributor.authorAugier, Stanislas
dc.date.accessioned2024-01-25T05:32:11Z
dc.date.available2024-01-25T05:32:11Z
dc.date.copyright2021-08-19
dc.date.issued2021
dc.description.accesstimeAT_PUBLICATION
dc.description.financePublikacja bezkosztowa
dc.description.number8
dc.description.versionFINAL_PUBLISHED
dc.description.volume16
dc.identifier.doi10.1371/JOURNAL.PONE.0255537
dc.identifier.issn1932-6203
dc.identifier.urihttps://repozytorium.uw.edu.pl//handle/item/111760
dc.identifier.weblinkhttps://journals.plos.org/plosone/article?id=10.1371/journal.pone.0255537
dc.languageeng
dc.pbn.affiliationpsychology
dc.relation.ispartofPLoS ONE
dc.relation.pagese0255537
dc.rightsCC-BY
dc.sciencecloudnosend
dc.subject.enbehavioral corporate finance
dc.subject.enoverconfidence
dc.subject.encorporate capital structure
dc.subject.enagent based model
dc.subject.enmacroeconomic effects of managerial biases
dc.subject.plfinanse behawioralne przedsiębiorstw
dc.subject.plnadmierna pewność siebie
dc.subject.plstruktura kapitału przedsiębiorstwa
dc.subject.plmodelowanie wieloagentowe
dc.titleManagerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective
dc.typeJournalArticle
dspace.entity.typePublication