The study of managerial biases and their implications for firm outcomes is one of the fastest-growing research areas in finance. Since the mid-2000s, this strand of behavioral corporate finance has provided ample theoretical and empirical evidence on the influence of biases in the corporate realm. Research in this field has been a leading force in dismantling the argument that traditional economic mechanisms—(1) selection, (2) learning, and (3) market discipline—are sufficient to uphold the rational-manager paradigm.
In Behavioral Corporate Finance: The Life Cycle of a CEO Career (Oxford Research Encyclopedia of Economics and Finance, September 2020), we review and analyze the growing body of research in the field. We structure our discussion according to three distinct phases of CEO careers: appointment, being at the helm, and dismissal. A key contribution of our paper is the insight that each phase of this CEO career life cycle is closely linked to one of the three aforementioned pillars of the rational-manager paradigm.