Resumen de Managers’ escalation behavior in equity investment decisions and the role of corporate governance

Chih-Jen Huang, Amy Yueh-Fang Ho, Hsin-Yu Liang, Chun-Hung Chiang

• The aim of this study is to investigate the relationship between free cash flows and escalation behavior in the long-term stock buying decisions for the firms listed in Taiwan. The main findings include: (1) Managers tend to exhibit the escalation behavior in the long-term equity investment. (2) There is a positive association between the level of free cash flows and the magnitude of managers’ behavioral escalation. (3) The corporate governance mechanisms play a contributory role in mitigating the escalation behavior. The evidence is robust across subsamples for electronic versus non-electronic industries, growth versus value firms, and loss versus gain firms