Corporate governance: a behavioural perspective

Managers, directors and investors, as subset of humans, display biases and rely on heuristics and gut feelings; given that these deviations from normative theory are correlated across people, the effects are not offset, but impact on firms and stock markets. In this thesis I explore two phenomena ( overconfidence and sentiment ) inside two different strands ( b e h a v i o u r a l c o r p o r a t e fi n a n c e and a s s e t p r i c i n g ), by adopting two different approach (micro and macro), and in particular following the fil rouge of the focus on board of directors (BoD) . After providing a detailed quantitative description of the dimension and the evolution of interlocking directorship (ID) in the Italian country over the years 1998-2013, taking advantage of the recent financial crisis as a natural element to test the hypothesis (disconfirmed) that these links are developed to reduce uncertainty ( R e s o u r c e D e p e n d e n c e T h e o r y ) , I propose ID as proxy for overconfidence at board level, during mergers and acquisitions (M&As). The examination of the psychological and experimental literature seems to suggest that directors, in this specific decision making context, may be influenced by a series of phenomena that make them to believe to know more than they actually do and these dense links foster the illusion of knowledge and the illusion of control . Results for 296 M&A deals reveal that ID is associated with a negative stock market reactions for different event windows considered, suggesting that they are value destructive in the short term, and sitting in more than one BoD even increases this result corroborating the hypothesis of managerial overconfident evaluations. The relevance of the members of the BoD is also analysed from the perspective of investors’ opinions and the impact of mass media on their expectations formation process. Focusing on the press, which nowadays still represents the most common information tool, a computational linguistic technique is applied to extract sentiment of 60.805 newspapers’ articles which mention Chairman, Vice – Chairman and Chief Executive Officer (CEO) of all Italian listed companies over the period 1998-2013, quantifying the positive and negative content for each article, and, therefore relate the content and corporate governance issues, such as CEO duality and celebrity status, to stock market reaction. Results reveal a negative market reaction to news related to B o a r d ’ s - C h a i r C E O s , and an even stronger negative one for negative news that mention Board’s-Chair CEOs, confirming a negative investors’ perception of CEO duality. The findings also show that c e l e b r i t y s t a t u s , associated to the ten most mentioned directors in the sixteen years analysed, and high level of visibility, do not elicit positive reactions from the audience as these variables have a strong, negative and statistically significant impact on stock market prices