Capital Structure - Hersh Shefrin Behavioral Corporate Finance
7 important questions on Capital Structure - Hersh Shefrin Behavioral Corporate Finance
Adjusted Present Value (APV) is
When will financial executives tend to repurchase shares?
How would managers choose between using the firm's cash to repurchase shares and using the firm's cash to finance a new project?
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Sensitivity of investment to cash flow
What are the most pervasive (doordringend) biases afflicting managers?
What are the two main indications that a CEO is excessively optimistic and overconfident?
What are the two main reasons for lack of diversification in CEO portfolios?
- CEO compensation contracts regularly contain large quantities of stock and option grants in lieu (i.p.v.) of cash compensation. To maximise the incentive effects of these holdings, boards prohibit their CEO's from perfectly hedging agains the risk by selling company stock short.
- The CEO's repetitional capital is invested in the firm, so a bad outcome in her firm will not only negatively impact her personal portfolio but will also reduce her outside opportunities.
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