Solution Manual for Behavioral Corporate Finance 2nd Edition by Shefrin ISBN 1259277208 9781259277207

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Language: English

ISBN-10: 1259277208

ISBN-13: 978-1259277207

ISBN-13: 9781259277207

Author: Hersh Shefrin

Table of Content:

Chapter 1 Behavioral Foundations

1.1 Traditional Corporate Financial Decisions and Psychological Tasks

Dual Systems

1.2 Biases

Excessive Optimism

Overconfidence

Confirmation Bias

Illusion of Control

1.3 Heuristics

Representativeness

Availability

Anchoring and Adjustment

Affect Heuristic

Interacting Phenomena

1.4 Framing Effects

Loss Aversion

The Fourfold Risk Pattern

Framing Pitfalls

Prospect Theory

Aspiration Points

1.5 Mitigating Pitfalls

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 1 Are Available at www.mhhe.com/shefrin2e

Minicase: Panama Canal

Case Analysis Questions

A1.1 Questionnaire

A1.2 Representativeness and Bayes’ Rule

A1.3 Formal Structure of Prospect Theory

Chapter 2 Introduction to Behavioral Analysis

2.1 Traditional Treatment of Corporate Financial Decisions

2.2 Behavioral Treatment of Corporate Financial Decisions

2.3 Analyzing Biases

Excessive Optimism

Overconfidence

Confirmation Bias

Illusion of Control

2.4 Analyzing Heuristics

Representativeness

Availability

Anchoring and Adjustment

Affect Heuristic

2.5 Value Destruction and Sun’s Endgame

2.6 Analyzing Framing Effects

Loss Aversion

Aversion to a Sure Loss

Lawsuits and Aftermath

2.7 Debiasing and Nudges

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 2 Are Available at www.mhhe.com/shefrin2e

Minicase: Nuclear Meltdown at Fukushima Daiichi

Case Analysis Questions

A2.1 Minicase: Hurricanes and Psychology: From Wall Street of the Southwest to the Big Easy

Case Analysis Questions

Chapter 3 Valuation

3.1 Traditional Approach to Valuation

3.2 Target Price Heuristics

P/E Heuristic

PEG Heuristic

Price-to-Sales Heuristic

3.3 A CFO’s Reliance on Valuation Heuristics

3.4 How Analysts Value Firms: An Illustrative Example

Analyst Mary Meeker

The Morgan Stanley Team’s Mid-2004 Price Target for eBay

3.5 Valuation Heuristics and Biases: in Foresight

Optimism Bias: In Foresight

Biases Associated with P/E, PEG, and PVGO: In Foresight

Biases Related to the 1/n Heuristic: In Foresight

Biases Using the CAPM Heuristic: In Foresight

3.6 Valuation Heuristics and Biases: In Hindsight

3.7 Biases Associated with Free Cash Flow Formula

38. Agency Conflicts

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 3 Are Available at www.mhhe.com/shefrin2e

Minicase: Aetna

Case Analysis Questions

A3.1 Definition and Derivation of Free Cash Flow

A3.2 Growth Opportunity Bias (GOB)

A3.3 Biases Associated with the Textbook Free Cash Flow Formula

A3.4 Detailed Chronology of eBay, 2003–2014

A3.5 Minicase: Palm Inc.

Case Analysis Questions

Chapter 4 Capital Budgeting

4.1 Traditional Treatment of Capital Budgeting

4.2 The Planning Fallacy

The Planning Fallacy in Aircraft Manufacturing

4.3 Excessive Optimism and Overconfidence in Capital Budgeting

Excessive Optimism in Public-Sector Projects

Excessive Optimism in Private-Sector Projects

Agency Conflict Determinants of Excessive Optimism

Overconfidence

Psychological Determinants of Excessive Optimism and Overconfidence

4.4 Project Adoption Criteria

The Importance of Intuition

The Affect Heuristic

Choice, Value, and the Affect Heuristic

4.5 Reluctance to Terminate Losing projects

Aversion to a Sure Loss

Escalation of Commitment

4.6 Confirmation Bias and Sunk Costs: Illustrative Example

Behavioral Bias and Agency Conflicts at Syntex

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 4 Are Available at www.mhhe.com/shefrin2e

Minicase: MGM Resorts International: Las Vegas CityCenter

Case Analysis Questions

A4.1 Detailed Description of Airbus’s A380 and Boeing’s 787

A4.2 Using Forecasts Prepared by Others

Implications

A4.3 Cost Accounting

The Framing of Costs

Heuristics

A4.4 Minicase: Compusys

Case Analysis Questions

Chapter 5 Inefficient Markets and Corporate Decisions

5.1 Traditional Approach to Market Efficiency

5.2 Behavioral Approach to Market Efficiency

Irrational Exuberance and Stocks as a Whole

Sentiment Beta

Limits to Arbitrage

Risk and Sentiment

Managerial Decisions: Market Timing and Catering

5.3 Market Efficiency, Earnings Guidance, and NPV

5.4 Stock Splits

Example: Tandy’s Stock Split

5.5 To IPO or Not to IPO?

Three Phenomena

IPO Decisions

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Minicase: The IPOs of Groupon, Facebook, and Twitter

Case Analysis Questions

Chapter 6 Perceptions about Risk and Return

6.1 Traditional Treatment of Risk and Return

6.2 Psychological Issues Estimating the Market Risk Premium

Die-Rolling

Extrapolation Bias: The Hot-Hand Fallacy

Gambler’s Fallacy

6.3 Biases in Financial Executives’ Judgments of Market Risk Premium

Overview

Detailed Look

6.4 Executives, Insider Trading, and Gambler’s Fallacy

6.5 Biases in Financial Executives’ Judgments Relating to Risk, Return, and Discount Rates

Discount Rate and WACC

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Minicase: Elon Musk, Tesla Motors, Risk, and Return

Case Analysis Questions

Chapter 7 Capital Structure

7.1 Traditional Approach to Capital Structure

7.2 Behavioral Considerations Pertaining to Financing and Investment

7.3 How Do Managers Make Choices About Capital Structure in Practice?

New Equity: Market Timing

New Debt: Financial Flexibility and Debt Timing

Target Debt-to-Equity Ratio

Traditional Pecking Order

7.4 Market Timing: How Successful?

Perception of Overvalued Equity: New Issues

Perception of Undervalued Equity: Repurchases

Debt Market Timing

7.5 Financial Flexibility and Project Hurdle Rates

Undervalued Equity: Cash-Poor Firms Reject Some Positive NPV Projects

Undervalued Equity for Cash-Limited Firms: Invest or Repurchase?

7.6 Sensitivity of Investment to Cash Flow

7.7 Psychological Phenomena and Interdependencies among Financing, Investment, and Cash

Excessive Optimism, Overconfidence, and Cash

Identifying Excessively Optimistic, Overconfident Executives

Assessing Value

7.8 Catering and the Conflict Between Short-Term and Long-Term Horizons

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Minicase: Cogent Communications and PSINet

Case Analysis Questions

Chapter 8 Dividend Policy

8.1 Traditional Approach to Payouts

8.2 Dividends and Investors: Psychology

Dividends and Risk: Bird in the Hand

Self-Control and Behavioral Life Cycle Hypothesis: Widows and Orphans

Institutional Investors

8.3 Survey Data Describing How Managers Think about Dividends

Changing Payout Policies: Some History

Survey Evidence

8.4 Dividend Policy and Investors’ Tastes

Citizens Utilities Company

Catering and Price Effects

Behavioral Signaling

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 8 Are Available at www.mhhe.com/shefrin2e

Minicase: Apple

Case Analysis Questions

A8.1 Minicase: Nipsco

Case Analysis Questions

Chapter 9 Agency Conflicts and Corporate Governance

9.1 Traditional Approach to Agency Conflicts

9.2 Paying for Performance in Practice

Low Variability

Dismissal

Stock Options

Shareholder Rights

9.3 Psychological Phenomena

From the Mouth of Directors

Prospect Theory and Stock Option-Based Compensation

Risk Aversion and Impatience

Relative Incomes

9.4 Incentives, Accounting, Auditing, and Psychology

Earnings Management

Auditing

9.5 Sarbanes-Oxley and COSO

Sarbanes-Oxley (SOX)

COSO

9.6 Fraud and Stock Options: Illustrative Example

Signs of Disease?

9.7 Ethics and Cheating

Why Students Cheat

Ethics and Psychology: Why People Cheat

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 9 Are available at www.mhhe.com/shefrin2e

Minicase: Hertz

Case Analysis Questions

A9.1 From the Mouths of Board Members: Direct Quotations

A9.2 Minicase: Tyco

Case Analysis Questions

Chapter 10 Mergers and Acquisitions

10.1 Traditional Approach to M&A

10.2 The Winner’s Curse

10.3 Optimism, Overconfidence, and Other Psychological Phenomena Impacting Acquiring Executives

Psychological Drivers of Risk in M&A

Reference Point-Based Heuristic Effects on Deal Negotiations

10.4 Theory

Symmetric Information, Rational Managers, and Efficient Prices

Excessive Optimism and Overconfidence When Prices Are Efficient

Inefficient Prices, the Acquisition Premium, and Catering

Asymmetric Information and the Winner’s Curse

10.5 AOL Time Warner: The Danger of Trusting Market Prices

Strategy and Synergy

Valuation

Asset Writedown

Hubris

Aftermath

10.6 Hewlett-Packard and Compaq Computer: Board Decisions

The Merger Alternative

Psychological Basis for the Decision to Acquire Compaq

Valuation

HP’s Board Accepts Reality

Aftermath

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 10 Are Available at www.mhhe.com/shefrin2e

Minicase: Yahoo!

Case Analysis Questions

A10.1 Avoiding the Winner’s Curse

Analytical Solution

A10.2 Two Monty Hall Problems

A10.3 Illustrative Example: Cisco Systems

Cerent Corporation

A10.4 Illustrative Example: AT&T

A10.5 Illustrative Example: 3Com and U.S. Robotics

Risks and Benefits

Outcome

A10.6 Illustrative Example: PSA Peugeot Citroen SA and Daimler Chrysler AG

Additional Questions

Chapter 11 Financial Management and Group Process

11.1 Traditional Approach to Financial Management

11.2 Process Loss

11.3 General Reasons for Group Errors

Groupthink

Poor Information Sharing

Inadequate Motivation

11.4 The Global Financial Crisis: Experiences of Different Firms

Financial Instability Hypothesis

Problematic Group Process and Psychological Phenomena at Financial Firms

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Additional Resources and Materials for Chapter 11 Are Available at www.mhhe.com/shefrin2e

Minicase: Toshiba

Case Analysis Questions

A11.1 Enron and Worldcom

Enron

Imagine Yourself in the Boardroom

WorldCom

A11.2 Decision Making at PSINet

A11.3 Behavioral Aspects of Fairness

Fairness and Confidence

A11.4 Systemic Change: Process, Culture, and Neuromanagement

Open Book Management

Neuromanagement and OBM

A11.5 Seagate: Extended Minicase

Case Analysis Questions

Chapter 12 Application of Real-Option Techniques to Capital Budgeting and Capital Structure

12.1 Traditional Approach to Option Theory

12.2 Do Managers Use Real-Option Techniques?

Opaque Framing?

More Than a Decade Later: Have Viewpoints Changed?

12.3 Valuing Levered Equity

Example A12-6

12.4 Conflicts of Interest

Example: Small-Scale Project

Asset Substitution

Debt Overhang

Capital Structure

12.5 Overconfidence and Excessive Optimism

Overconfidence

Excessive Optimism

Capital Structure A12-18

Summary

Additional Behavioral Readings

Key Terms

Explore the Web

Chapter Questions

Minicase: The Savings and Loan Crisis of the 1980s

Case Analysis Question

Chapter 13 Behavioral Aspects of Investments

13.1 Traditional Approach to Investments

13.2 Psychology and Market Efficiency

Anomalies and Pricing Factors

Long-Term Reversals: Winner–Loser Effect

Momentum: Short-Term Continuation

Post-Earnings-Announcement Drift

Fixed Income Securities: The Expectations Hypothesis

Options: Implied Volatility Function

13.3 Limits of Arbitrage

Pick-a-Number Game

13.4 Closed-End Funds

13.5 The Baker-Wurgler Sentiment Index

13.6 Risk and Return: Susceptibility to Representativeness and the Affect Heuristic

Example

Risk, Affect, Representativeness, and Bias

Categorization

13.7 Sell-Side Analysts’ Judgments of Expected Return

13.8 Active and Passive Investing

13.9 Forecasting Market Returns and Risk Premiums

Individual Investors and the Hot-Hand Fallacy

Professional Forecasters and Gambler’s Fallacy

Market Forecasts Made by Portfolio Managers and Analysts

13.10 Realizing Gains and Losses: The Disposition Effect

Psychological Phenomena Underlying the Disposition Effect

Disposition Behavior

Valuation: The Endowment Effect and Responsibility

Momentum and the Disposition Effect

13.11 Individual Investors’ Stock Trades: Overconfidence

13.12 Attention and Familiarity

13.13 Fundamental Analysis and Technical Analysis

13.14 Behavioral Portfolio Selection Framework

Downside Protection and Upside Potential

Value Expressiveness and Socially Responsible Investing

Diversification and Efficient Portfolios

13.15 Dividends, Self-Control, and Consumption

Dividends and Frame Transparency

Mental Accounting-Based Spending Rules

Dividend Clienteles

Price Changes, Returns, Framing, and Salience

13.16 Retirement Saving

13.17 Financial Planners

Financial Literacy

Big Five

Nudging Investors

13.18 Investment Committees

Homogeneity

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