One of the most striking developments in research on corporate finance and corporate governance over the last decade is the rise of behavioral finance. While earlier behavioral research had focused on psychological biases in the economic decision making of consumers or individual investors, the more recent research has provided evidence of their significant explanatory power even for top managers. Starting from virtually no published findings in finance until about 2000, Behavioral Corporate research now makes up a third to a half of the behavioral finance research in top finance and economics journals, with the majority focusing on the biases of top managers, as Malmendier (2018) documents (see Figure 3). Recent empirical work has established a significant role of managerial biases such as overconfidence, limited attention, or the sunk-cost fallacy in shaping investment, merger, and financing decisions (see, e.g., the overview in Günzel and Malmendier, 2020).
There is still one limitation to this existing research: Much of it focuses exclusively on the traits and biases of the chief executive officer (CEO). There are good reasons for this focus, namely, the central role of CEOs as the top decision makers and, more mundanely, data availability. In practice, however, other top managers, and especially other members of the C-Suite, significantly influence corporate decisions as well, and we know little about their biases and the interaction of their views and the CEO’s views.