pdf-tiedosto: todennäköisyys of financial stress (Kallunki)

Question 1

we hypothesize and find that CEO’s and directors’ past personal payment default entries increase the likelihood of the future financial distress of the firm. We base our hypotheses on two inter-related literatures. First, many theoretical and empirical papers show that managerial trails such as overconfidence, over- optimism, and the illusion of control can account for incorrect strategic decisions, including investment distortions, high debt levels, or unsuccessful acquisitions

Answer 1

Hyvä hyvä! :D

Question 2

Second, the same personal traits have been reported to play an important role in consumers’ over-indebtedness and credit defaults. We therefore argue that, by reflecting the same managerial traits that have been found to affect corporate decisions, managers’ payment default entries are potentially useful predictors of financial distress of the firm.

Answer 2

Nice :D

Question 3

We find that including information on CEO’s and directors’ payment default entries significantly increases the ability of the original Altman’s (1968) and Ohlson’s (1980) models to predict bankruptcy and insolvency. Our results also show that bad managerial decisions are first reflected in declining financial ratios and then result in financial distress.

Answer 3

Oho! :0

Question 4

First, our results show that the traditional Altman (1968) and Ohlson (1980) models used for predicting the
bankruptcy and insolvency of the firm should include information on the person- related risk characteristics of the top management of the firm. Regarding distress prediction, a policy implication of our paper is that creditors should recognize the increased distress risk arising from appointing defaulting CEOs and directors. Second, we extend the growing body of literature on the role of managerial traits in business outcomes to the issue of financial distress. In particular, many studies show that managerial traits affect corporate leverage and investment and acquisitions decisions, but there are no papers examining whether such decisions can lead the firm even into financial distress, which is often a consequence of overly risky financial and investment decisions.

Answer 4

Jebou :D

Question 5

Finally, although the behavioral literature implies that managerial traits affect corporate decisions and consequent business outcomes, there is a possibility of reverse causality. In particular, firms anticipating declining future prospects may appoint managers with certain personal traits, which are also reflected in their payment default entries. However, also in the case of the reverse causality, creditors should recognize the increased distress risk arising from appointing defaulting CEOs and directors. We leave for future research to explore the possibility of the reverse causality in details.

Answer 5

Jaahas jaahas 0.o