Knowledge that Transforms

We examine whether managerial cognitive heuristics spill over from personal to corporate decisions. We identify “anchoring CEOs” who anchor on the 52-week high in personal stock trading and show that this behavior extends to corporate financial decisions. These CEOs are more likely to issue seasoned equity offerings near the 52-week high and place greater weight on the target’s 52-week high in acquisition pricing, with the latter associated with negative abnormal returns. The effect is stronger under competitive pressure and uncertainty but weaker with stronger governance and CEO experience. Our findings highlight cross-domain persistence in managerial heuristics and the role of governance in mitigating behavioral distortions.

Anti-recharacterization laws significantly increase the rights of securitization creditors by allowing the buyers of securitized assets to exclusively and immediately seize collateral in bankruptcy. However, strengthening the rights of securitization creditors can limit other creditors’ ability to recover loans. We find that, after a state adopts an anti-recharacterization law, local banks operating in the same state accrue more loan loss provisions, tighten their loan contracts, and incur higher future loan charge-offs. These findings are consistent with the argument that a safe harbor for securitization transactions advantages Wall Street-style structured finance at the expense of Main Street-style lending.