European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 1026: Do Managers Overreact to Salient Risks? Evidence from Hurricane Strikes

Olivier Dessaint () and Adrien Matray ()

Abstract: Consistent with salience theories of choice, we find that managers overreact to salient risks. We study how managers respond to the occurrence of a hurricane event when their firms are located in the neighborhood of the disaster area. We find that the sudden shock to the perceived liquidity risk leads managers to increase the amount of corporate cash holdings, even though the real liquidity risk remains unchanged. Such an increase in cash holdings is only temporary. Over time, the perceived risk decreases, and the bias disappears. This bias is costly for shareholders because it leads to higher retained earnings and negatively impacts firm value by reducing the value of cash. We examine alternative explanations for our findings. In particular, we find only weak evidence that the possibility of risk learning or regional spillover effects may influence our results.

Keywords: managers; overreact; salient risk

JEL-codes: D03; D81; D83; G02; G31; G39

64 pages, February 17, 2014

Full text files

papers.cfm?abstract_id=2358186 PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-22 16:53:02.