Corporate governance and behavior finance

5-8 double spaced pages (not counting references page or appendices)

Summarize the main points in the paper, and then critically analyze the paper's conclusions in the context using 2-3 of the following:

• Explain why reliance on heuristics and susceptibility to framing effects make managers vulnerable to making faulty decisions that reduce firm value

• Apply the effects of potential biases with the use of valuation heuristics to real world scenarios provided by the instructor

• Distinguish between the remedies appropriate to agency conflicts and the remedies appropriate to behavioral biases in capital budgeting and dividend policy decision making

• Compute the adjusted present value to assess how the managers of a financially constrained firm with undervalued equity should choose between repurchasing shares and undertaking new profitable projects

• Analyze how representativeness leads managers, investors. and market strategists to form biased judgments about the market risk premium

• Analyze personal and corporate financial decision making in the context of recent findings from neuroscience and the role of emotions

• Analyze the potential for stock option-based compensation to exacerbate agency conflicts due to aversion to a sure loss and overconfidence.

Cronqvist, H., Makhija, A. K., &Yonker, S. E. (2012). Behavioral consistency in corporate finance: CEO personal and corporate leverage. Journal Of Financial Economics, 10320-40. doi:10.1016/j.jfineco.2011.08.005.