Four essays in behavioural finance and experimental economics

Khan, Tanvir Nabi (2020) Four essays in behavioural finance and experimental economics. PhD thesis, University of Nottingham.

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Abstract

The PhD thesis consists of 4 separate but related pieces of works. All of them are associated with various behavioural phenomena that can affect the way individuals or a group of individuals make economic decisions. The PhD thesis adopts two methods of research: empirical and experimental.

We study an important managerial personality trait in Paper 1. The study finds that CEOs with a higher level of narcissism are significantly more likely to be targeted by shareholder activists. Moreover, there is some evidence that institutional blockholders, in general, are less likely to invest in firms with narcissistic CEOs. We show that there is a negative association between a high level of narcissism in CEOs’ and long-term value creation following activism news announcement. The results imply that CEO narcissism can have a significant influence on the investor-management relationship. The study also presents experimental evidence that is in line with the empirical findings that narcissistic CEOs are more likely to face intervention in the form of an activism event. Experimental data show that narcissistic leaders are more likely to be punished by the group members.

In Paper 2, we study accountability in a principal-agent set-up where a leader makes risky decisions on behalf of a three-person group. The decision involves choosing between a risk and a safer option. We study six accountability treatments (in addition to two no- accountability treatments) where a member from each group (an active member) can punish or/and reward the leader. Leaders exhibit more risk-seeking behaviour when the principal is unable to punish. We find that recipients are the happiest when the leader chooses the same option they (recipients) prefer. We also show that the punishment-only environment leads to the lowest amount of misalignment between leaders’ choices and recipients’ preferences. Unlike punishment decisions, reward decisions found to be biased toward the outcome of leaders’ decisions. Finally, we observe that although punishment decisions by principals are in line with a hybrid accountability system, rewards decisions are in line with an outcome accountability system.

In Paper 3, we compare two types of laboratory asset markets under responsibility with markets where traders are not responsible. We study two types markets under responsibility (i) markets where traders receive a fixed amount for trading on behalf of another subject (ii) markets where traders receive a performance-based variable amount for trading on behalf of another subject. We find that overpricing is significantly lower in markets where traders are responsible for someone’s economic well being. The study also explores the influence of participants’ level of cognitive ability on the end value of wealth in different treatments. We show that traders with higher cognitive ability earn significantly more compared to low ability traders in the variable salary markets and baseline markets. The same pattern was not observed in the fixed salary under responsibility treatment.

Paper 4 contains two experiments. We ran the experiments to investigate the impact of framing, emotional states induced by video clips, and responsibility on honesty and lying behaviour. We use a die-rolling experiment with economic incentives following Fischbacher and Föllmi-Heusi (2013). We find that a negative message about dishonest actions and a video clip intended to elicit the emotional state in the form of contentment decrease lying. We find that individuals with higher cognitive ability (i.e., higher CRT scores) are less likely to be influenced by interventions. We also find that narcissists are more likely to lie. In experiment two, we observed that truth-telling was less evident in the presence of added responsibility. Both men and women tell a white lie (i.e. a lie that helps another individual), but men are more likely to tell a white lie in the presence of an economic incentive.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Chmura, Thorsten
Le, Hang
Keywords: behavioural finance; shareholder activism; accountability; laboratory asset markets; honesty
Subjects: H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 61300
Depositing User: Khan, Tanvir
Date Deposited: 11 Dec 2020 04:40
Last Modified: 11 Dec 2020 04:40
URI: http://eprints.nottingham.ac.uk/id/eprint/61300

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