A Study of Behavior on Ownership of Director: Prospect Theory Perspective

• Main Authors: Chen, Chih-hua, 陳志華
• Other Authors: Wen, Yue-Fang
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/92557164170970226174

碩士 === 國立宜蘭大學 === 應用經濟學系碩士班 === 97 === This study tries to verify whether the behavior of board directors’ ownership is rational via the value function of cumulative prospect theory proposed by Tversky and Kahneman(1992), i.e., whether the relationship between ownership of director and firm performance is S shaped. According to the results of simple regression, α=β=0.64 and λ=1.22956 are obtained (λ significantly greater than 1), implying that the risk-averse behavior is existent when facing gains and the risk-seeking behavior is existent when facing losses with the tendency of loss aversion. This study also considers control variables, such as debt ratio, dividend pay out ratio, R&D ratio, assets growth ratio, and industry, to control the influential factors other than firm performance. But when control variables are included in multiple regression models, the results violate the assumptions of cumulative prospect theory and imply that the empirical evidences of value function are not robust. One implication of the results is that the behavior of director ownership does not merely consider the firm performance, and the behavior is also constrained by corporate financial status which reduces the tendency of risk aversion or risk seeking. Another speculation is that cumulative prospect theory is only applicable to individuals’ behavior, not suitable for firm-level behavior and decisions. But the speculation needs further investigations and evidences.