Investor perception of managerial honesty greatly affects investment choices
Prof. Rajna Gibson Brandon, SFI@UNIGE, and Prof. Alexander Wagner, SFI@UZH, research presented at AEA/AFA in Chicago.
In their paper “Investing in managerial honesty”, Rajna Gibson Brandon (SFI@UNIGE), Matthias Sohn, Carmen Tanner, and Alexander Wagner (SFI@UZH) show, using laboratory experiments, that investor perception of managerial honesty greatly affects investment choices. Specifically, a one standard deviation increase in a CEO’s perceived commitment to honesty compared to another CEO reduces the relevance, for investment decisions, of announced return differences between the CEOs by about 40%. In addition, investors’ personal values also affect their investment choices, leading to segmentation based on social and moral criteria.